What does futures arbitrage mean?
Futures arbitrage refers to arbitrage by using the fluctuation of price difference between related futures contracts. Because some related contracts only have cost differences such as storage fees, interest, transportation fees and handling fees, there can be reasonable price differences between contracts. When the price difference is unreasonable, you can arbitrage related contracts at the same time until the price difference returns to normal, so as to obtain profits.
Futures arbitrage is divided into three ways, namely inter-period arbitrage, cross-market arbitrage and cross-variety arbitrage:
1 intertemporal arbitrage: the arbitrage of two futures contracts with the same index but different months. When the spread is too large, buy the near-month contract and sell the far-month contract, and the opposite is true when the spread is small. The spread between arbitrage varieties is mainly determined by the storage fee.
Cross-market arbitrage: refers to arbitrage in different markets with the same futures contract. When the spread is too large, you can buy a low-priced contract and sell a high-priced contract at the same time, and the opposite is true when the spread is small. The spread between arbitrage varieties is mainly determined by the transportation cost.
Cross-variety arbitrage: refers to arbitrage by using the futures price difference between two different but interrelated commodities. The spread between arbitrage varieties is mainly determined by the processing fee.