The range of assets mentioned here is very wide, which can be stocks, bonds, funds, futures, options and so on. According to the different assets used in arbitrage, arbitrage can be divided into different types, such as spot arbitrage, intertemporal arbitrage and cross-species arbitrage.
The arbitrage mentioned above is the most common arbitrage method, that is, holding two kinds of assets at the same time, and the position direction of the two assets is one more and one empty. In reality, there will be other different arbitrage methods.
For example, a number of assets operate at the same time, some hold long positions and some hold short positions. Although there are more than two assets, it is still an arbitrage transaction.
Another example is option arbitrage, in which traders hold both call options and put options for cross-type arbitrage. The positions of both assets are long, but they are still regarded as arbitrage transactions.
There are various forms of arbitrage, but the most basic and common arbitrage method is the trading method of two assets.
In the basis trading of treasury bond futures, if you do multi-basis operation, you need to short futures while doing more spot. If you short the basis, you need to do more futures while shorting the spot. So the position of futures and spot is opposite. From this perspective, the basis transaction is an arbitrage transaction.
There are also some differences between basis trading and general arbitrage trading, mainly in the following aspects:
(1) In general arbitrage trading, the quantity ratio of two assets is 1: 1, while in basis trading, the quantity ratio of futures and spot is CF: 1. If the ratio of treasury bond futures to spot is 1: 1, it can also be traded, but such basis trading will have certain risks. In this book, we call this trading method with the ratio of 1: 1 spread trading.
(2) The profit and loss curve of general arbitrage trading is linear. There are options in the basis transaction, so its profit and loss curve is similar to the form of options. Theoretically speaking, long basis, limited loss, unlimited income, short basis, limited profit and unlimited loss.
(3) In general arbitrage trading, at any time, the quantitative ratio of the two assets is fixed. For example, the ratio of arbitrage trading today is 2: 1, and the ratio of arbitrage trading after one year is still 2:1; In basis trading, the ratio of futures to spot is CF: 1, and the conversion coefficient of different government bonds is different, so is the CFs of the same government bond corresponding to futures with different maturities. Therefore, the basis trading of using different futures at different times or at the same time is different.