Everything has two sides, and arbitrage trading is no exception. In addition to the above advantages, there are several shortcomings:

1. The potential benefits are limited. In the eyes of many investors, the biggest disadvantage of arbitrage is that the potential income is limited. This is normal. When you limit the risks in trading, you usually limit your potential income. However, whether to choose arbitrage trading in the end depends on the many advantages and limited potential benefits of arbitrage.

2. Excellent arbitrage opportunities rarely occur frequently. The number of arbitrage opportunities is closely related to the efficiency of the market. The lower the efficiency of the market, the more arbitrage opportunities; The higher the efficiency of the market, the less arbitrage opportunities. As far as the current domestic futures market is concerned, the efficiency is not high, and there are several good arbitrage opportunities for each futures product every year. However, compared with the unilateral megatrend, there are many arbitrage opportunities every year.

3. Arbitrage also has risks. Although arbitrage has the advantages of finite risk and lower risk, it is still risky. This risk comes from: the price deviation continues to be wrong. The strong-weak relationship between contracts tends to keep the trend of "the strong will be strong and the weak will be weak" in the short term. If this price deviation is finally corrected, arbitrageurs will have to suffer temporary losses in this transaction. If investors can bear such losses, they will eventually turn losses into profits, but sometimes investors can't survive the loss period. Moreover, if the short contract is crowded and continues until the contract is delivered, the price deviation will not be corrected and the arbitrage transaction will end in failure.

risk source assessment of arbitrage investment

successful investment comes from the understanding and grasp of risks. Like other investments, futures arbitrage investment also has certain risks, and analyzing and evaluating its risk sources is helpful for correct decision-making and investment. Specifically, there may be the following risks in arbitrage investment:

(1) The spread runs in an unfavorable direction. Except for spot arbitrage, other arbitrage methods profit from the change of spread, so the running direction of spread directly determines the profit or loss of the arbitrage. When we make an arbitrage investment plan, we should fully consider the possibility that the spread will run in an unfavorable direction. If the loss caused by the unfavorable spread of an arbitrage opportunity is 2 points, and the profit caused by the favorable spread is 4 points, then such an arbitrage opportunity should be grasped. At the same time, we should also set a stop loss for the possible unfavorable operation of the price difference and strictly enforce it. Since the risk of price difference is so important, it is generally given a risk weight of 8% in actual operation.

(2) delivery risk. It mainly refers to the risk of whether warehouse receipts can be generated during spot arbitrage and the risk that warehouse receipts may be cancelled and re-inspected during intertemporal arbitrage. Because the above situation has been considered in detail when making an arbitrage plan, and careful calculation has been made, we give this risk a weight of 1%.

(3) the risk of extreme market. It mainly refers to the risk that the exchange may force the liquidation when there is an extreme market. With the increasingly standardized futures market, this kind of risk has become smaller and smaller, and this risk can be avoided by applying for hedging and other methods. Therefore, it is also given a weight of 1%.

Arbitrage trading is an investment trading channel independent of unilateral trading, because its corresponding trading object and trading strategy are different from unilateral trading. The choice of the two depends largely on investors' risk preference, investment risk and capital size.

In general, the price difference between contracts involved in arbitrage trading is much smaller than the price change of a single contract, which is a trading method with low risk and stable income. Therefore, arbitrage trading is mainly the investment choice of traders with large capital or stable style. Below we will explain the overall advantages or characteristics of arbitrage trading.

Hedging the uncertainty of related commodities

(1) Lower volatility and risk

Compared with a single commodity, arbitrage transactions hedge some uncertain factors that affect price changes. Therefore, in general, the fluctuation of price difference is much smaller than that of price, and the risk faced by arbitrageurs is smaller, which reduces the pressure on investors' fund management.

(2) finite risk

For arbitrage with corresponding spot operation mechanism, it can also achieve finite risk, or even theoretical risk-free. For example, if the price of the recent contract of storable goods is lower than that of the forward contract and the price difference is higher than the holding cost of the goods, arbitrage can be carried out to buy the recent contract and sell the forward contract. Even when the delivery approaches, the spread between the forward contract and the recent contract widens. Arbitrators can choose to buy for delivery in the near future and sell for delivery in the long term. Therefore, this arbitrage is finite risk arbitrage. This is also commonly referred to as "cash and carry arbitrage".

(3) protection against price limit

The hedging characteristics of many arbitrage transactions can not only hedge against daytime price fluctuations, but also protect the price limit. For example, because of political events, major accidents, weather, government reports and other unexpected events, futures prices will go up and down, or even go up or down. At this time, the positions that are reversed will suffer heavy losses before liquidation, and even lead to a deficit in the trader's account. Under the same conditions, arbitrage traders are basically protected, and the losses caused are often much smaller than those caused by unilateral transactions.

(4) Risk/return ratio is more attractive

Arbitrage position can provide a more attractive return/risk ratio compared with a given unilateral position. Although the profit of each arbitrage transaction is not very high, the success rate is high, which is determined by the limited risk, lower risk and lower volatility characteristics of the spread. In the long run, only a few people make profits from unilateral trading, and often only 3 out of 1 people make profits. Arbitrage, on the other hand, has the characteristics of stable income and low risk, so it has a more attractive income/risk ratio, which is more suitable for the operation of large funds.

Arbitrage is a trading strategy independent of speculation

Objectively speaking, there is no absolute advantage or disadvantage between investment methods, and the choice of investment methods depends largely on investors' risk preference, investment risk and capital size. Arbitrage trading is a trading method with less risk and stable income compared with unilateral trading. Its corresponding trading object and trading strategy are different from unilateral price trading, so it is an alternative investment trading method different from unilateral trading.

under normal circumstances, the price difference of the contract involved in an arbitrage transaction is much smaller than that of a single contract, and there are more profit opportunities. At the same time, arbitrage is walking on two legs, so arbitrage trading is often the main investment choice for traders with large capital or stable style. In fact, based on the characteristics of stable arbitrage income and more investment, funds are a good way to carry out arbitrage transactions and obtain arbitrage profits.