Expert Chaslau Koniukh
  • Companies
  • Global investment
  • Investors
  • Terminology
  • Economy
  • Stock Market
  • World exchanges
  • Tech and Marketing
Arbitrage strategies
Market terminology

Arbitrage strategies: the essence and variants of application in stock trading

09.12.2021
2 min read

When it is profitable to use arbitrage strategies

Trading is invariably associated with risk, but it is possible to learn how to manage and anticipate it. In addition, it’s important to differentiate between different trading methods and evaluate them according to their level of risk. For example, with such options as intraday trading, margin trading and options trading one must be more cautious. Low-risk methods include investing in bonds, creating a portfolio with balanced assets and others. Another option for safer trading are arbitrage strategies.
Arbitrage is a method of trading based on the conclusion of transactions with similar assets. This option is used when there is a difference between the value of these assets. There are variants on the market which are quite similar in their price and its dynamics. These include basic and derivative assets, including stocks and futures.  However, it should be taken into account that this correlation is not always observed and may change as a result of the influence of various factors. The latter include certain processes on the market due to which transactions are monetized. Simply put, the use of arbitrage strategies allows one to make money on the process of restoring the price dynamics between different assets. When there is a difference between the assets, the trader buys the cheaper one and sells the one that went up. At the same time, the value of both tends to the same indicator, only one tends to decrease in price and the other tends to increase in price.
When there is a financial difference between the underlying asset and its arbitrary instrument, you can make a profit. Usually it concerns shares and futures. For example, the price of the former is 200 rubles, in a lot of 10 shares, which amounts to 2 thousand rubles. If the futures for 100 of such securities will go for 20 thousand rubles, and the trader can sell the shares for 21 thousand rubles. Then he will get a profit of one thousand rubles.
If the futures price will not change and the shares will go up to 210 rubles, then it will be profitable for the trader to sell the securities and close the deal with the futures at the price of 21 thousand rubles. The profit will again be at the level of 1,000 rubles.
One of the options for arbitrage strategies is the dividend strategy. In this case, if the shares are scheduled to pay dividends and the deadline for closing the register to receive them is set, it is possible that the price of the shares will equal the value of the futures. And then it will be possible to apply the arbitrage by buying the stock and selling the futures for it. In this case, the trader still has a contract for the deferred sale of the security at the expiration date.

Tags: Market terminology
0
Previous Post Alternative energy in Europe is increasing generation volumes Next Post Bank of America: how imminent is the steel market correction

You Might Also Like

oscillators in trading
Market terminology
Oscillators in trading: advantages and disadvantages of instruments
23.01.2021
types of moving averages
Market terminology
Types of moving averages: indicator functions and its usefulness for traders
06.07.2022
Trader's tools
Market terminology
Trader’s tools: peculiarities of the order book use
23.04.2021
order block
Market terminology
Order block and its use for stock exchange trading
25.11.2023
Robert Prechter's theory
Market terminology
Robert Prechter’s theory as a tool for analysing market sentiment
11.12.2023
rally in the market
Market terminology
What is a rally in the market: definition and reasons for the emergence
03.05.2021

Popular Posts

  • Li Ka Shing: How can success be achieved without money and education?
  • Skolkovo analysts: the Russian energy market is suffering losses
  • Ingeborg Mootz: a woman who became a stock player at the age of 75
  • Analysts: Egypt’s economy to continue falling in 2023

Editor's Picks

Chaslau Koniukh
Analytics

American bankers from JPMorgan and Goldman Sachs advise to invest in gold: review by Chaslau Koniukh.

Press Secretary
17.08.2020
Expert Chaslau Koniukh
Analytics

Chaslau Koniukh on the analysts’ opinion on the key stake size change soon

Press Secretary
18.06.2020
expert Chaslau Koniukh
Analytics

Chaslau Koniukh: Internet trade market in Russia may reach 2.78 trillion rubles.

Press Secretary
30.05.2020
Will the U.S. oil shale industry be able to quickly recover from the crisis: A Review by Chaslau Koniukh
Analytics

Will the U.S. oil shale industry be able to quickly recover from the crisis: A Review by Chaslau Koniukh

Press Secretary
16.05.2020

Popular Posts

  • Li Ka Shing: How can success be achieved without money and education?
  • Skolkovo analysts: the Russian energy market is suffering losses
  • Ingeborg Mootz: a woman who became a stock player at the age of 75
  • Analysts: Egypt’s economy to continue falling in 2023
  • Businessman Chuck Feeney: the man who gave the world Duty Free
Expert Chaslau Koniukh
  • Facebook
  • Twitter
  • Instagram

© 2024 CHASLAU KONIUKH. ALL RIGHTS RESERVED. Expert in marketing and project management, international investments, financial analyst.

Menu

  • Biography
  • Companies and corporations
  • Global investment
  • Investors and Entrepreneurs
  • Economy
  • Market terminology
  • Stock Market
  • World exchanges
  • Tech and Marketing
  • Analytics