First, intertemporal arbitrage:
1. Intertemporal arbitrage is the most common arbitrage transaction. When the normal spread between different delivery months changes abnormally, it benefits from hedging the same commodity, which is divided into two forms: bull spread arbitrage and bear market arbitrage.
2. For example, the metal bull spread, the exchange buys metal contracts in the latest delivery month and sells metal contracts in the forward delivery month, hoping that the recent contract price will increase more than the forward contract price. 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.
Second, cross-market arbitrage:
1. 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, both London Metal Exchange and Shanghai Futures Exchange trade cathode copper futures, and the price difference between the two markets will exceed the normal range several times every year, which provides traders with opportunities for cross-market arbitrage.
2. For example, when the copper price of LME is lower than that of SHFE, traders can buy LME copper contracts and sell SHFE copper contracts at the same time, and then hedge the trading contracts and make profits when 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.
Third, cross-commodity arbitrage:
1. 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.
2. 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.