What are the functions of arbitrage?
The function of futures speculation helps to find the price. The function of arbitrage is to find the relative price of the market. Under the influence of speculative funds, the market price relationship often appears unfair. The function of arbitrage is to make the price relationship reasonable, so that the corresponding goods or market resources can be allocated reasonably and effectively.
Characteristics of arbitrage trading
① Less risk. The futures market is full of variables, and arbitrage is an ideal investment tool for investors with less risk tolerance. Taking intertemporal arbitrage as an example, because two futures contracts in different delivery months are affected by the same factors, but the price trends are roughly the same, arbitrage trading based on this can provide corresponding protection mechanism for unpredictable unexpected risks (such as policy risks).
② Income is relatively stable. Arbitrage trading gives full play to the leverage characteristics, so that traders can obtain relatively stable expected returns with less margin level. It can be said that the magic of arbitrage lies in providing traders with more market choices, reducing trading risks and increasing profit opportunities.
In addition, the basis of arbitrage is price relationship, and the basis of speculative operation is price level, which can reflect the rationality of price level. Therefore, the study of arbitrage is of great benefit to judge whether the speculative state and price level of the market are reasonable.