Intertemporal arbitrage can be divided into bull spread and bear spread. For example, in 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 rise 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.
Extended data
Arbitrage risk
1, transaction risk
Usually, two or three transactions cannot be completed strictly at the same time, so there is the possibility that some arbitrage portfolio transactions and price fluctuations will be exposed, and the possibility of closing positions cannot guarantee that the transactions will be carried out at a profitable price. Different market trading hours also bring risks to arbitrageurs. For example, the arbitrageur found that there was a profit margin between the new york Stock Exchange and the London Stock Exchange for IBM's share price, but due to the inconsistent trading hours of the new york Stock Exchange and the London Stock Exchange, he could not complete the portfolio operation on both exchanges at the same time.
2. Invalid pairing
Another risk of arbitrage trading comes from the simultaneous failure of the price relationship between buyers and sellers. The arbitrator may think that there is a close price correlation between a pair of assets. They sell overvalued assets and buy undervalued assets. They hope to make profits by narrowing the asset gap in the future. However, the arbitrator's judgment may be wrong. Due to market fluctuation, the price correlation of portfolio will be invalid for a long time, and this arbitrage transaction will face the risk of exceeding expectations.
3. Counterparty
Because arbitrage involves the future delivery of funds, there is a risk that the counterparty will default and cannot pay the funds. If only one counterparty or multiple related party transactions involve one counterparty, the risk will be further increased, especially in the financial crisis, when many counterparties default, the risk will be amplified through leverage.
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