Questions tagged [arbitrage]
Arbitrage is the simultaneous purchase and sale of an asset to profit from a difference in the price. It is a trade that profits by exploiting the price differences of identical or similar financial instruments on different markets or in different forms. Arbitrage exists as a result of market inefficiencies and would therefore not exist if all markets were perfectly efficient.
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Can someone make money by cycling through currencies and exchanges?
I am not a finance expert at all, but I recently got this idea from a conversation with a friend on whether it is possible to make money by starting with a fixed amount of dollars and then try and ...
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Why does the currency carry trade work?
I understand the carry trade mechanism, but I wonder why it works, or why it doesn't work.
Each currency has an interest rate associated with it. The Yen (JPY) has historically had a very low ...
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Arbitrage with a limit order
The usual notion of arbitrage involves putting two market orders at different exchanges. These orders are immediately executed at different prices and I earn the price difference.
Is there a special ...
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How should I pay tax on arbitrage profits?
Suppose I make an instant gain on an arbitrage trade. This is instant profit, so to speak, so technically there is no capital gains made. Do I pay CGT or income tax on the profit?
I'm inclined to ...
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Why are pair-wise exchange rates not the inverse of each other?
I just went to morningstar.de and had a look at the current exchange rates:
I was expecting that
(EUR->USD) * (USD->EUR) ≈ 1
Only approximately, because we only have 5 decimals here. But for ...
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How to execute orders for triangular arbitrage?
As a study, I've developed a simple algorithm to detect market discrepancies for triangular arbitrage opportunities through the OANDA REST API. To my surprise, it actually discovered a few of said ...
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ETF + Hedge ETF = guaranteed profit?
If I own an ETF (say based on the S&P 500) and also a short on a correlated index (e.g. SH), does that mean I am guaranteed to win in either extreme market condition? I simply sell the one that is ...
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Why isn't contango in crypto futures markets simply arbitraged away?
Currently (21-Feb-2021), bitcoin futures markets are in contango, with contracts maturing at the end of June trading at about a 9.1% premium to the spot price. My assumption is that one could purchase ...
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How does spot-futures arbitrage work in the gold market?
At the time of writing:
According to Kitco, the spot price for gold is about $1240 per ounce.
According to CME Group, futures contracts are above that price for many months ahead.
Why couldn't I buy ...
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Taxation of foreign currency arbitrage
I live near the border with Mexico have found a way to make some money trading currencies when I go over for the afternoon. Basically, I can withdraw money in pesos at an atm machine from a checking ...
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Why doesn't the GBTC premium get arbitraged away?
My understanding of how GBTC works is that all of the following are true:
Accredited investors may provide BTC to Grayscale and receive shares of GBTC in exchange.
After a six month lockup, the ...
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How are ADRs priced?
How is the price of an American Depository Receipt (ADR) determined?
An American Depository Receipt is a receipt that a non-U.S. share is held by a bank on behalf of the receipt holder. If you hold ...
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Arbitrage on Libor rate and Swap rate
I must be wrong here, but still want to know where I am wrong. I found the data of Libor rate and swap rate from this link:
http://www.interestrateswapstoday.com/libor-rates.html
At the time, I read
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How do Authorized Participants prevent index fund tracking error, including tracking error due to an expense ratio?
When I search for explanations of how index-tracking ETFs avoid tracking error, the following explanation is normally given: ETFs allow certain Authorized Participants to trade the underlying assets ...
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Where can I find the current price to rent ratio of the locality of my interest?
After reading an article about where to buy homes, I'm trying to do research on renting versus purchasing a home.
I'd like to figure out what the price to rent ratio is as one factor of my research.
...
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How should I pay tax for Bitcoin arbitrage?
I have a good friend in South Korea. He's been my friend for 15 years and I trust him more than I trust my own family. We even lived together once.
My friend in South Korea is asking me if I'm willing ...
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Is credit card arbitrage still viable?
Are the common credit card arbitrage schemes still viable? (investing during the grace period or during a zero percentage balance transfer period)
Haven't the credit card companies figured this out ...
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Is this gamble arbitrage opportunity?
Suppose someone offers you the following gamble:
You pay $7 and toss a coin. If the coin comes up heads, he pays you $10, and if tails comes up,
he pays you $5.
You in turn get the idea of offering ...
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Question about option chain
https://beta.finance.yahoo.com/quote/GOOG/options?ltr=1&date=1516320000
OK, can't I just SELL "350 @ $395 and BUY "340" @ $391 and pocket $4 immediately and realize another $10 if and when the ...
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What is the principle of forming an arbitrage strategy?
I have heard that the arbitrage strategy follows the principle of "short in expensive, and long in cheap" (Or, maybe, it was "short in cheap, and long in expensive."). I wonder how to explain this ...
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Can we use ETF instead of individual stocks to perform an index arbitrage
In Index arbitrage, people usually buy(sell) a future against the basket of stocks that form the index.
Why they don't just use the index etf like SPY instead of buying individual stocks? Is it not ...
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Do banks waive early mortgage payment charges if interest rates change?
I moved house (in the UK) 6 months ago and took out a five year mortgage with rate fixed at 1.76% for the life time of the mortgage.
Currently the top paying 3 and 5 year fixed savings account are ...
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Do share prices on average drop by the whole dividend?
Share prices (including ETF prices) drop when a dividend is paid out.
What's the empirical evidence for the exact amount of the drop? I found some old papers that mention that the stocks they looked ...
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"Holding the trade" in fixed income arbitrage
From TIPS v Treasuries: What a wild ride it was!
Receiving 5% on one US Government Bond and paying 2.5% on another US Government Bond with the same maturity is an obvious winner, but many hedge ...
user32205
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How does an ETF that tracks a foreign stock index work? - Potential arbitrage opportunities because of time-zone? [duplicate]
Suppose I live in the US and want to buy an ETF share traded in the US. I would already know how Chinese stock market performed by the time the US market is open because of the 12-hour difference.
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Who buys a weak currency?
Suppose I want to convert Zimbabwean dollars into US dollars. Who will buy the Zimbabwean dollars from me? That is, why would they ever agree to change their valuable US dollars into the less valuable ...
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Understanding Arbitrage Strategy (problems and solutions)
I think it's easier to understand with an example:
Suppose this arbitrage between 3 markets:
BTC/USD = $1000 USD // just to make easier the number
BTC/EUR = $870 EUR
EUR/USD = 1.17 USD
We buy 1 ...
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What is the difference between issuing company and holding company in a convertible bond
I am researching convertible bonds in Canada. While looking at the index etf that tracks convertible bonds, CVD
What I don't understand is how come the list of Top 10 issuers is different from teh ...
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Do I just let an options conversion/reversal trade go to expiration?
Let us say I lock in a small riskless profit using a conversion. Which means (as an example), I sell a call, buy a put and buy stock, and net a credit of .20.
What do I do next? Do I just let the ...
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401K loan repayment
401 K plan allows me to take a loan and repay it in monthly installments with 5% additional, which adjusts it for inflation, i.e., I do not have to pay any fees or interest rate for my loan.
I know ...
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Interest Rate Arbitrage - Pay off loan
I am planning for interest rate arbitrage to pay off my education loan in India at 11.25% interest rate using a personal loan at 3.9% interest rate from an European country where I work drawing ...
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Oil futures price convergence
Looking at oil prices now:
May: $20
June: $26
Spot: $20
According to the price convergence theory, the price of the May futures contract closely matches the spot price. This makes sense.
However, ...
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How does the S&P500 option chain relate to the S&P ETF options?
The S&P 500 itself seems straightforward enough: It's what you would get if you bought a little bit of the largest companies on the market. I understand that there are also options on the index, ...
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Does an option trading below parity always indicate an arbitrage opportunity?
If an option is trading for less than parity, is it always a mispricing, waiting to be arbitraged, or are there other factors that can lead to this?
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One commodity, 2 ETCs, same specs, different return - why?
Background:
I hold silver ETC that charges 0.49% TER. There are cheaper ETCs that haven't been around when I entered the market. I am trying to assess if it makes sense to roll over. Interestingly, ...
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What are the common arbitrage strategies for trading Gold?
As the title states, will like to know more about what arbitrage strategies are commonly used for gold traders.
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Why does the DJIA take a dip on the 19th of every month since May?
The Dow Jones Industrial Average has a brief downward spike on the 19th of every month since May 2021, except where the 19th falls on a weekend - so, May 19, June 18, July 19, August 19, September 20. ...
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Why can't we arbitrage ETFs?
I invest in a couple of ETFs in Europe and regularly I observe results such as:
VUSA (Vanguard's European S&P500 ETF) went up 0.41% today;
the S&P500 went down 0.68%;
the EUR/DOL went down 0....
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Dividend arbitrage using in the money puts
I was looking at dividend arbitrage
It seems all I need to do is find stocks with a nice dividend(e.g KO). Then find an in the money put where the time premium is less than the dividend to be paid. ...
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Trading stock with very large B/A numbers. How are buyers and sellers selected?
Looking at some funny stocks with really high volume (in the billion), I see that for some of them the number of bids and asks (B/A) are enormous (for some, in the hundred of millions).
I'm wondering ...
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What do mutual funds gain by being different from ETFs
This is what I understand on how ETS work vis-a-vis mutual funds:
If I buy an ETF (SPY), then the ETF trust fund does not take my money and go out and buy the underlying stocks.
I buy one share of SPY ...
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A few questions about stock investing
(1) What happens if I buy a stock before it splits? For example,
I buy 100 shares of A at $10 dollars per share a day before a 2:1 split. With T+2, delivery will be after the stock split. Does the ...
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Is the convertible bond arbitrage strategy really riskless if share price rises a lot?
Convertible bond arbitrage is a position when one goes short the company's stock and long the company's convertible bond.
I have found many articles on the Internet stating that this is a riskless ...
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How to detect and construct an arbitrage trade?
I have the following problem: I am supposed to decide, if there exists an arbitrage,and if so, I am supposed to construct it.
1.Bond
Maturity: 1 year
Nominal value: 1$
Annual coupon: 0%
Market ...
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How to benefit from different forward rates
This is an exam question that I cannot answer using my textbook so I came to this site for help:
Assume that I can buy a 2, 2 forward rate of 11% at the stock market, that is in two years I can ...
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ETF and Underlying Index Arbitrage
if an ETF has a slight tracking error with regards to the index it is tracking, shouldn't that be easy to arbitrage?
What Arbitrage strategy could be used, and why isn't the tracking error already ...
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Calculation of spread arbitrage profit
I would like to know if my spread (arbitrage) calculation is correct or wrong. as an example i have bitcoins which i would like to use for the ethereum i am going to buy at market A and sell at market ...
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How does the value of an asset (valued in two different currencies) change when the exchange rate changes?
Suppose an asset is traded on two different exchanges in different countries having different currencies. In an ideal world without transaction costs, tariffs, taxes or delivery costs etc, the price ...
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For someone who already has enough cash to buy a home, isn't it better to wait and take mortgage when interest rates are high?
Contrary to common wisdom in media the reasons why I think that taking mortgage at higher interest rates may make more sense are that:
Almost all mortgages are callable by borrower. Hence, if you ...
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What is the Arbitrage opportunity and strategy here?
Suppose that the current stock price is €100, the exercise price is €100, the annually compounded interest rate is 5 percent, the stock pays a €1 dividend in the next instant, and the quoted call ...