1. The price of the same asset is different in different markets.
2. The pricing difference between two assets with the same or similar value is too large. For example, similar agricultural futures: soft wheat and hard wheat; The prices of raw materials and finished products are different.
3. For an asset with a known future price, the gap between the current price and the price discounted at the risk-free interest rate is too large. For example, the storage cost of agricultural products should also be taken into account.
Specific examples:
1) sells USD and buys GBP in new york market. At this time, GBP assets are100 * 0.7500/0.7500 =100.
2) sell pounds and buy yen in the London market. At this time, the yen assets are100 *140.60/140.20 =100.2853.
3) Finally, sell yen and buy dollars in the Tokyo market. At this time, the dollar assets are100.2853 *107.20/107.30 =100.1918.
After the arbitrage is completed, the assets of10019180000 are more than the original 100000, and the arbitrage is earned.
Extended data:
Common arbitrage risks are as follows:
(1) spread runs in an unfavorable direction. The direction of futures spread directly determines the profit and loss of arbitrage. If the arbitrage opportunity spread is unfavorable, the possible loss is 200 points, then when the spread is favorable, the possible profit is 400 points. This kind of arbitrage opportunity should be actively grasped. Therefore, when operating, you must set a stop loss position and strictly implement it.
② risk of delivery. Mainly refers to the risk of whether warehouse receipts can be generated during term arbitrage, and the risk that warehouse receipts with inter-period arbitrage may be cancelled and re-examined. Investors should pay attention to this kind of delivery risk in operation, make careful calculation, reduce the risk in order to obtain greater benefits.
③ Extreme market risk. It refers to the risk that the exchange may be forced to close its position under extreme market conditions, such as a sharp drop or a sharp rise. With the increasingly standardized futures market, we can avoid this risk and protect our own income by hedging.