Arbitrage is the practice of buying a security/product in one market and selling it in another, in an effort to capitalize on price difference. Arbitrage can take many forms in trading: buying a security in one market and selling it in another for a better price (market arbitrage); borrowing money in one currency at a lower interest rate in order to pay off debt in another currency with a higher interest rate (currency arbitrage); buying and selling the same security on different exchanges or between spot prices of a security and its future contract; and so on. Continue reading...
Arbitrage opportunities can be found in a few different places in the market, when risk-free profit can be made. If a stock is purchased before the ex-dividend date, and a put is exercised when the share price falls after the dividend is distributed, it is known as dividend arbitrage. Arbitrage is when an investor finds a situation where one thing can be exchanged for another, such as the same thing on two different exchanges or similar fixed instruments which can be swapped, when no risk is taken and a profit is gained. Continue reading...
Currency arbitrage is when the value of a triangle of currency pairs does not cross-correlate, and a bank or large institution is able to exploit the temporary discrepancy for a profit before the market equalizes again. Arbitrage is when an investor (usually an institutional investor) can pick up something in one market that has a higher value in another market, perhaps due to lower liquidity or information flow in the secondary market, and can move goods or securities across these markets and make a profit. Continue reading...
Market arbitrage is when investors, particularly institutional investors, find price discrepancies between one exchange and another and exploit the difference for their profit. It has the helpful side-effect of bringing the prices on all exchanges closer together. Arbitrageurs are investors and brokers who bridge the gap between prices in one market and another. The price difference is similar to the bid/ask spread profit created by market makers. If a stock is listed on multiple exchanges, it is said to be cross-listed, and it may present an arbitrage opportunity. Continue reading...
Assets that are held are sometimes analyzed in terms of the cost of carrying them, called the cost of carry. In certain situations, there may be a potential for profit if an asset that might otherwise have a cost of carry could be traded for an asset that actually generates profit. The arbitrage opportunity that exists in that space, and the market formed by it, is sometimes called the carry trade, or the currency carry trade where it applies to currency. Continue reading...
Dividend capture is a strategy similar to dividend arbitrage that seeks to reap incremental gains somewhat reliably around the ex-dividend date of a stock. The investor seeks to benefit from the fact that stock prices don’t always go down as much as they should on the ex-dividend date, so by selling quickly at that point, the investor may still get a small gain from the dividend that will still be paid to him or her. Dividend capture is a strategy that plays on slight inefficiencies in prices around the ex-dividend date. Continue reading...
A Credit Default Swap is a contract that provides a hedge against credit default risk. To guarantee against the non-payment of a loan, a Credit Default Swap can be purchased for a premium. The seller of the swap bears the risk of payment if a bond issuer defaults, or if there is a similarly threatening “credit event” which is agreed upon in the terms of the swap contract. Generally, the buyer of a credit default swap will pay quarterly premiums for the protection, and the annualized premium is called the "spread," which may be a set percentage of the notional amount. Continue reading...
A bond trustee is an institution which has the fiduciary responsibility of administering and enforcing the terms of the bond indenture. A bond indenture is the contract between the bond issuer and the bondholder. A trustee has the resources to manage the distribution of the funds to the bondholders, to keep up with and distribute the required bookkeeping and statement information to the interested parties as well as regulators like the SEC. If there is a violation of the contract, the trustee must report it and act in the best interest of the wronged party. Continue reading...
In the world of finance, one concept that has stood the test of time is arbitrage. It's a term that may sound complex, but at its core, it's a straightforward strategy employed by traders to capitalize on differences in asset prices across various markets. In this article, we'll delve into the world of arbitrage, exploring what it is, how it works, and why it's a critical component of efficient financial markets. Continue reading...
An Abandonment Option can be worked into a contract for a capital project at a business, for example, or between an investment advisor and his or her clients. An abandonment option outlines the terms by which either party in an agreement can choose to cease their involvement in the project or a working relationship without penalty. This may be worked into the contract on a business partnership agreement, a capital project, or even something as simple as the relationship between a financial planner and his or her clients. Continue reading...
Unlock the secrets of arbitrage, a trading strategy that has intrigued investors for decades. Dive into its mechanisms, explore real-world examples, and discover how savvy traders exploit market discrepancies. Are you ready to navigate the intricate world of arbitrage? Continue reading...
Unlock the world of financial opportunities through arbitrage trading. Learn why it's legal, how it enhances market efficiency, and why arbitrageurs are vital in maintaining market liquidity. Dive into the world of profitable and legitimate financial strategies. #ArbitrageTrading #FinancialMarkets #MarketEfficiency Continue reading...
Statistical arbitrage is one of the most influential trading strategies ever devised. It thrives on the idea that financial markets are not always perfectly efficient, and there are opportunities to profit from short-term price discrepancies. In this article, we'll delve into the world of statistical arbitrage, exploring its origins, strategies, and the impact it has on financial markets. Continue reading...
Dive into the enigmatic realm of High-Frequency Trading (HFT), where speed, secrecy, and strategy reign supreme. This guide unveils the mechanics, strategies, and influential role of HFT firms in the financial markets. Discover how these covert powerhouses leverage cutting-edge technology and sophisticated algorithms to shape market dynamics and drive profits. Whether you're a financial enthusiast or a seasoned trader, this exploration of HFT offers valuable insights into the high-speed, high-stakes world of modern trading. Equip yourself with the knowledge to understand and navigate the complexities of HFT in today's rapidly evolving financial landscape. Continue reading...
Market neutral is a term used to describe strategies of investing that are poised to benefit whether the market goes up or down, or even if it stays stagnant. Some professionally managed funds might take a market-neutral stance in their entirety, or investors might employ market-neutral strategies for specific parts of their portfolio. Market Neutral means that your position as an investor is neither bearish nor bullish, and you may be able to profit whether the market moves up or down, or even if it doesn’t move at all. Options traders, for instance, have a wide variety of market-neutral positions that they can take, since profiting may depend more on the presence of volatility rather than price movement in one direction or another. Continue reading...
Discover the world of Index Futures! These financial instruments offer valuable insights and opportunities for investors. Learn how to calculate fair value, use arbitrage, and predict market direction. Master the art of Index Futures to excel in dynamic financial markets. 📈 #Finance #Investing Continue reading...
Unlock Profits with Event-Driven Trading 📈 Discover how to profit from mergers, acquisitions, and other market-shaking events! Learn the mechanics, strategies, and potential pitfalls of event-driven trading in our comprehensive guide. Don't miss this opportunity for financial gains! 💰 #EventDrivenTrading #Investing Continue reading...
Unlock the world of Proprietary Trading! Discover how financial institutions use their capital to reap market rewards. Learn about key strategies, benefits, and regulatory insights in our comprehensive exploration. Dive into the realm of finance and boost your knowledge. #ProprietaryTrading #FinanceInsights Continue reading...
Algorithmic trading, the fusion of technology and finance, has revolutionized the trading landscape. By automating trading decisions based on predefined algorithms, it offers precision, speed, and efficiency that human traders can't match. But what lies beneath these algorithms? How do they work, and what strategies power them? This guide delves deep into the world of algorithmic trading, shedding light on its intricacies, advantages, and challenges. Whether you're a novice trader or a seasoned professional, this exploration will equip you with insights and knowledge to navigate the dynamic realm of automated trading. Dive in and unlock the secrets of algorithmic trading. Continue reading...
Hedge funds can employ many strategies and focus on virtually any kind of investing style or market. They also have the flexibility to change their strategy as they see fit. Morningstar and other services will group hedge funds into categories and provide benchmarks based on their average performances. As of 2016, there are over 12,000 hedge funds, and over half of those are required to report to the SEC. Continue reading...