arbitrage
arbitrage questions and answers
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Q: Arbitrage?
Is arbitrage simply the process of buying and selling securities? or am I totally off.
A: I am an economist and professional investor and no one has correctly answered your question.
Arbitrage is the riskless purchase of one asset and simultaneous sale of another in such a way that you have no money invested and you are guaranteed a profit without risk.
The classic example if company A is buying company B, one share for one share. Company A's stock is selling for $50 per share and company B's stock is selling for $48. You sell short, Company A's stock for whatever you can borrow and simultaneously buy Company B's stock. You sell stock you do not own at $50 and use the money to buy the other stock at $48. You pocket the $2. When the company sends you the shares of company A in place of the shares of company B, you then pay back the short seller. You keep the $2. There is a mutual fund that actually does only this.
Another example, but one that should be riskless, but isn't is Unilever. Unilever PLC and Unilever NV each own precisely half of the Unilever Group. Each one is half the company, it is really just two perfectly identical classes of shares with identical rights trading under two different tickers. They often trade far apart in price. You should be able to short one and buy the other, but this can go on for years and has been as much as a 35% difference before the prices converged. If you bought at a 10% difference you would lose 20% of your money before the market caught on, a few years later, of how big an error this was.
For it to be arbitrage, you must have no money of your own invested, there must be no risk at all, and you must make a profit. It is the proverbial free lunch. It can be done, it is hard to find the opportunities unless you spend a lot of time looking.
Q: Can someone guide me about the arbitrage business? Is there any training institute for arbitrage?
I want to take arbitrage as my core business. I have heard it is an attractive business in stock and commodity market. Can someone guide me further? Is there any broking house who specialize in this business?
A: Arbitrage is the process of making profit from the price difference between two or more markets and a person who engages in arbitrage is called an arbitrageur. For example, an investor is trading simultaneously in NSE and BSE, for particular stock the price in BSE is lower than the trading price in NSE. He can then make profit from this price difference by opting for arbitrage. But arbitrage is not the simple act of buying one asset at one market and then selling it to another market at a later time when the price is higher. Rather to avoid market risks of price change you need to make sure that both the transactions at both the market are done simultaneously. To eliminate the risk of price fluctuation you need to make sure that both the transaction is completed even before the change in the price at any of the markets.
Arbitrage is typically associated with trading in financial instruments like bonds, stocks, derivatives, commodities and currencies. There are different types of arbitrage including Merger arbitrage, Convertible bond arbitrage, Regulatory arbitrage, Depository receipts, Municipal bond arbitrage, and Telecom arbitrage. There are some preconditions that are essential for a profitable arbitrage to take place. If any one of the following point is true for a given condition then it is assumed that a profitable arbitrage is possible,
The same asset does trade at the same price at different markets.
Two assets do not trade with the similar cash flow at the same market.
An asset with a known price of the future does not trade on a given day at the market that is discounted at the risk free interest rate.
If you want to maximize your profit from arbitrage you need to make sure that the asset you trade in are electronically traded across different markets. Only then you can effectively make the transactions at the real time and maximize your profit from the whole process. Arbitrage when done in an informative way and with proper stock market analysis can effectively increase your profit limit. To ensure that you get maximum return from the arbitrage consult your stock broker or financial advisor for the proper asset and for the best time.
BSE and NSE conducts courses in arbtration from time to time
Q: How does Balance Transfer Arbitrage affect FICO?
I actively do balance transfer arbitrage. I have almost $100,000 in credit card debt, all at 0-1% APR. I have almost 40 revolving credit card accounts. No late payments ever. I believe my current credit score is about 620-630. How will doing more arbitrage affect FICO? How will paying off balances improve my FICO?
A: I carried a $25k balance for several years in a similar ploy.
While you hold the balance, your score is greatly depressed. Owing so much is a negative, applying for new accounts is a negative, having a high debt to limit ratio is a negative, having 40 accounts is a negative... It all looks pretty bad while you owe this money.
My score jumped from 700 to 820 in 1 year as I payed off the $25k I owed. I imagine if you were to pay off the $100k during 2008, your score would rise from 625 to 775. If you ever plan on obtaining a mortgage, you'd probably be better off if you paid off the 100k arbitrage accounts 2 months prior to applying for the mortgage in order to get the best rate available.
And a note on the arbitrage scheme: Make sure you're weighing true costs/benefits. Some costs that many don't count properly:
-Balance transfer fees: Tend to be 5% up to $150 (sometimes unlimited) these days. 3% up to $75 was the old norm, but those days are gone.
-Possible missed payment: You've been perfect on payments so far, but what is the risk of a missed payment... maybe it wouldn't even be your fault (mail issue or the company lost your payment) but how could you prove it? This could harm your score and raise your interest rates for years to come (including the rates on all your other current cards).
-Time: How much time are you spending to make this money? Consider the time you read through credit offers, paying bills, applying, checking each statement in detail, talking to creditors when they make mistakes (and they do make mistakes)...
-Worry: Do you worry about your $100k balance at all? That is very unhealthy and unpleasant.
Since you're calling this arbitrage, you must be in a riskless asset... which means you're making 4%-5%. 4%-5% minus the 1% interest rate minus balance transfer fees, minus taxes on interest, minus value of all the costs I listed above... what is your real return? Is it really worth it? **Not trying to sway you away, just making sure you honestly assess the situation.
Best of luck in your credit/arbitrage decisions!
Edit: I thought of a couple other costs: a lower credit score means higher car insurance rates, you could be paying less (likely 15% less) if your score was higher. Sometimes credit score influences hiring decisions as well... you never know who is judging you by your credit score.
Q: Is there an automated Forex trading program that automatically executes arbitrage opportunities?
I am picturing a "set it and forget it" program that constantly calculates the value of complex currency cycles and automatically executes an arbitrage trade when one becomes available. I understand the window of opportunity on such trades would be very short, is it even possible?
A: There are programs that do this. However, there is a very low profit margin and commissions will eat up more than you make unless you have a very low commission rate. Usually only brokerage houses can do this arbitrage as they have the lowest commission rates because they act as their own brokers.
Q: does anyone know of a company called Oz Future? They deal in Sports Arbitrage and keep calling me?
Oz Future deal in Sports Arbitrage, they charge over $7,000 and keep calling me on the phone. Is their Sports Arbitrage product legit?
A: No its definitely not legit, alot of people have spoke of Oz Future on the forums and they are labled as an absolute con. I have actually invested with them and made no return, my account seems to be going backwards all the time. I dont know how this is possible considering that Oz Future are suppose to be involved with Sports Arbitrage. If your still considering them, please check out this link on Oz Future first and then decide.
http://www.arbforum.co.uk/cgi-bin/yabb2/YaBB.pl?num=1185369903
Their is quite a bit on these guys so beware, you can also find more info on these type of scams at www.arbforum.co.uk and then go a third down the page where the SCAM section is it's called Seymours place. If you invest with these guys it's a cert you will loose your dough, i'm living proof.
Q: What is the difference between spread betting and arbitrage?
Looking for a more detailed 'betting for dummies' type of answer, please.
A: Spread betting is not betting on a simple outcome, a win or a loss, but the degree/margin of the result. Thus you are not content to say that team A will beat team B but that it will do so by more than one point and you would win more if the result were more in your favour but lose more if it went the other way. Sometimes then it is an open ended bet at one end because in theory there is no limit to how many points might be scored although there is a limit at the other end, nought.
Arbitrage arises when your bet looks to be on the way to being successful and you sell your position to someone else for a profit rather than see out the result to a finish - example, if prices are going up, buy at 10 and sell at 12 or if going down sell at 12 then buy at 10.
Q: Does arbitrage stabilize the foreign exchange market?
I'm arguing that it does, but i need a few more opinions either agreeing with me or against my point.
Thanks.
A: Yes they do!
http://www.investopedia.com/terms/forex/f/forex-arbritrage.asp?viewed=1
Because it is the most liquid market in the world, however, the opportunities are very, very small - meaning your stabilization theory is correct.
Due to another answer here I feel I should clarify that arbitrage is the exploitation of "loopholes" in the market, that, in markets as liquid as global currencies, are very small and close extremely quickly (I imagine seconds on the major currency pairs). It is very different than trading/speculation on larger time frames, and arbitrage "makes" and "stabilizes" markets; it does not move markets.
Hope this helps.
Q: has anyone heard of Thorough System Pty Ltd a company who offers sports arbitrage investments?
they are a brisbane based company although they set up in the gold coast. They're abn is 75 113 878 498.
A: It's not an "investment". They are bookies, and you have no guarantee of solvency, recourse, etc ...
Q: Can someone show me how to successfully do google adsense arbitrage?
Looking for free step by step guide to do google adsense arbitrage.
A: if you search google before posting, you'll find your own answer only 8 reults down on the first search results page:
http://www.wolf-howl.com/sem/adsense-arbitrage-tips-tricks-secrets/
Q: Has anyone heard of or had experience with a Sports Arbitrage trading company called Forbes International?
What has been your experience with Forbes International or what have you heard about them? They are a sports arbritrage trading company who ask for a subscription fee of $7900 and then you open an account with them of $1000 to $10000 and they trade for you. Their literature says they guarantee a 3% weekly profit from trading. You do not have to do anything and the subscription is for 5 years.
Sounds to good to be true - this makes me very suspicious.
Any info on them would be appreciated
A: sorry, no experience with that.
Q: How can a small investor use Arbitrage?? only with direct market access?
I dont know how to Arb!! You cannot specify to your broker to buy from one stock exchange and sell it to another.....so how do you do it?
A: there's no way unless you happen to have a couple billion dollars that you'd like to spend developing computer programs and supercomputers.
there are way too many black-box funds that are already doing this. they have enough capital to make minor price discrepancies very profitable. by definition, a "small" investor simply doesn't have those resources.
Q: what is the difference between arbitrage, speculation and scalping?
i need to know if there is a difference or are they similar?!
A: Arbitrage, Speculation Scalping are similar
Arbitrage is getting a good for a cheaper price and selling it for a higher price, such as buying something at wholesale like Sam's Club and then going back and selling the same good for more money. It is buying a product in one market, and going and selling in a different market where demand is higher.
the term Scalping usually deals with tickets to events, where one pays the face value of an item, and then goes and sells them for a higher price where the market of the good is determined by the demand and supply of the event.
Speculation involves buying or selling of assets to make a quick profit usually in short term investments
Q: I would like to know about Arbitrage scripts on NSE and BSE ?
Can anybody give me a good list of Scripts on NSE and BSE that have good arbitrage opprtunities.
Please help me !
A: You need to be more specific - can't help as it stands
Q: What forces would come into play to eliminate any arbitrage profits?
A: armed forces or dark forces
Q: How to use an ebay arbitrage between amazon without storing? ?
I would like to buy something on amazon or ebay and sell it on the other website without storing it (like drop shipping except buying from ebay or amazon.
A: This sounds like an unlikely scenario. The timing of the purchases would have to be quite close and the way eBay is structured you cannot guarantee not only winning the auction, but when the auctions will end. On the other side you cannot know when you will have a buyer for the item to be re-sold. Idea sounds good, but logically I don't see it being successful.