Buy and sell two different futures contracts at the same time. Traders buy contracts that they think are "cheap" and sell those "high-priced" contracts at the same time, benefiting from the changing relationship between the prices of the two contracts. In arbitrage, traders are concerned about the mutual price relationship between contracts, not the absolute price level.
Arbitrage can generally be divided into three categories: intertemporal arbitrage, cross-market arbitrage and cross-commodity arbitrage.
Intertemporal arbitrage is one of the most common arbitrage transactions. When the normal spread between different delivery months changes abnormally, it is profitable to hedge the same commodity, which can be divided into two forms: bull spread and bear spread. For example, when the exchange carries out the metal bull spread, it buys the metal contract in the recent delivery month and sells the metal contract in the forward delivery month, hoping that the price increase of the recent contract will exceed the price of the forward contract; Bear market arbitrage is the opposite, that is, selling the recent delivery monthly contract and buying the forward delivery monthly contract, expecting the price drop of the forward contract to be smaller than the recent contract.
Cross-market arbitrage is an arbitrage transaction between different exchanges. When the same futures commodity contract is traded in two or more exchanges, there is a certain price difference relationship between commodity contracts due to geographical differences between regions. For example, London Metal Exchange (LME) and Shanghai Futures Exchange (SHFE) both trade cathode copper futures, and the price difference between the two markets will exceed the normal range several times a year, which provides traders with opportunities for cross-market arbitrage. For example, when LME copper price is lower than SHFE, traders can buy LME copper contract and sell SHFE copper contract at the same time, and then hedge and close the trading contract after the price relationship between the two markets returns to normal, and vice versa. When doing cross-market arbitrage, we should pay attention to several factors that affect the spread of each market, such as freight, tariff and exchange rate.
Cross-commodity arbitrage refers to trading by using the price difference between two different but related commodities. These two commodities can replace each other or be restricted by the same supply and demand factors. The form of cross-commodity arbitrage is to buy and sell commodity futures contracts with the same delivery month but different varieties at the same time. For example, arbitrage transactions can be carried out among metals, agricultural products, metals and energy.
The reason why traders carry out arbitrage trading is mainly because the risk of arbitrage is low. Arbitrage trading can provide some protection to avoid unexpected losses or losses caused by sharp price fluctuations, but the profitability of arbitrage is also smaller than that of direct trading. The main function of arbitrage is to help distorted market prices return to normal levels, and the other is to enhance market liquidity.
A simple example is borrowing money at a lower interest rate and borrowing money at a higher interest rate. Assuming there is no risk of default, this behavior is arbitrage. The most important thing here is the identity of time and the certainty that the income is positive.
In reality, there is usually a certain time sequence, or a small probability that losses may occur, but it is still called "arbitrage", mainly in a broad sense.
Generally speaking, arbitrage is the operation of buying low and selling high at the same time!
At present, in the securities market, there are ETF arbitrage, securities transfer arbitrage, convertible bond arbitrage and warrant arbitrage.
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Arbitrage: trying to profit from the price difference of the same or similar financial products in different markets or in different forms. The ideal state is risk-free arbitrage. Arbitrage used to be a trading technique used by some alert traders, but now it has developed into a technique to profit from the small price difference of the same securities in different markets with the help of complex computer programs. For example, if the market under computer monitoring finds that ABC shares can be bought at the price of $65,438+00 in new york Stock Exchange and sold at the price of $65,438+00.12 in London Stock Exchange, arbitrageurs or special programs will buy ABC shares in new york and sell the same amount in London at the same time, thus obtaining the price difference between the two markets.
arbitrage