arbitrage
arbitrage questions and answers
Learn about arbitrage at the number one young investor website Teen Analyst.
Q: Basically, what is the difference between Leverage and Arbitrage?
Thanks!
A: Leverage is using a base capital to borrow on margin. So in fact, one futures contract of the Nasdaq100 (NQ), allows one to borrow 20x the actual price of the index so if the Nasdaq's quoted at $2500, you're actually managing a position of $50K with a single leveraged position. Then, small moves equal either a big payoff or loss.
Now, arbitrage is using the differences between one market's valuation vs another. So if the Japanese Yen is offering 0.5% interest rate and the Australian Dollar, 4%, then one could theoretically borrow Yen at 0.5%, using leverage to borrow some more with the right hedge fund/capital connections, and then buy Australian dollars with 4% and pocket the difference of 3.5% with a certain prediction that the floating price of the AUD/JPY index stays within a certain volatility and price range for that business quarter (or some other quantity of time) while the trade is happening. Of course, there's a risk of a breakaway which could render the trade a bust, but many traders have factored this in creating their allocations.
Q: Is anyone currently using sports arbitrage with WTS Investments, or heard of their director Allan Davenport?
They have changed the system slightly.
A: this is a good question. I am signed up - have been for 6 months. Can I ask why?
They changed the system recently whereas they don't use TopSport. Not sure if this whole scheme is for real - time will tell. Don't go into this if you can't afford to lose money is my advice.
Q: Sports Arbitrage Trading is a risk-free strategy of sports betting. Is it legal to do this with US bookies?
I'm aware of a company based in Ireland but none of the bookies they do business with is in the US. I am convinced that risk-free (you win every bet)sports betting is possible if one is not too greedy. The idea is to earn small daily net profits and let them compound over a period of time.
A: Iv done this and it does work. (Its quite time consuming though and you have to be careful as its easy to calculate things like time differences incorrectly)
Im not sure which bookies in the USA are legal but I have joined 45 bookies all over the world so if you live in a place where its not illegal then you can just work online. The UK ones are all very good and accept people from all over the world I think.
I have lots of info on this activity so please get in touch if you want any more information and Ill be happy to share this with you. Good luck
Q: the deifintions of hedging,speculation and arbitrage?
Hello, I am very new to all the financial terms and can't see clearly the differecnes between hedging, speculation and arbitrage.
so would you give me clear distinctions between these things and few examples?
Thanks and Happy New Year!
A: Hedging is reducing the risk of a portfolio of investments by incorporating assets that are not perfectly correlated with one another. The lower the correlation coefficent, the more risk reduction is achieved. This is usually achieved through financial derivatives, such as options, futures and forwards. These instruments are generally negatively correlated with their underlying assets. In English, that means that if you want to reduce your risk on an investment, you buy something that goes up in value when your initial exposure goes down in value.
For example, if I'm an orange farmer and I have a crop of oranges that's going to be ready for sale in 3 months, I obviously want the price of oranges to go up. I also get hosed if the price of oranges decreases between now and harvest time. If I go into the financial market and invest in something that allows me to profit if the price of oranges goes down (such as taking a short futures position in oranges), I can "hedge away" some of my risk. That is to say, the price of oranges going down between now and harvest time no longer hurts me. The downside to this strategy is that I have also lost my ability to profit if the price of oranges goes up. In that case, my futures position loses value, which destroys any value created on my orange crop.
Speculation occurs when an investor tries to take advantage of an expected price movement. For example, let's say that I think that oil will get more expensive in the future. If I buy oil futures with the intention of selling oil at a higher price later, I am speculating on the price of oil. Speculation is a risky investment strategy.
Arbitrage is making risk-free profits using borrowed money. Before you get too excited, I should let you know that so-called arbitragable situations are never, ever found in practice. Examples of arbitrage tend to be very complicated. Again, they don't exist in practice, so don't worry too much about it.
Q: Do you know about arbitrage trading?
Is it better than e-currency trading? Anyone that have actually done this arbitrage trading please let me know. And how profitable it is.
A: If you are in the United States DO NOT DO currency trading in any form except through a regulated futures market!!!!!!!
EVER!!!!!!!!
Arbitrage trading is buying a guaranteed mistake. For example, imagine IBM and Xerox (XRX) were going to merge on July 1, 2008 and IBM was paying $50 per share for XRX. Both boards have approved it, both sets of shareholders and the regulators. It is June 1, 2008. Since XRX is going to wink out of existence, trading in its shares has fell off because there is no reason to buy it unless you want $50 in one month. Now imagine a very large shareholder needs out today and wants to sell 10,000 shares in a very thin market and so offers to sell at 48. That is over 48% interest to get people to trade their liquidity for money while from the sellers side it is only a 4% loss since they are not annualizing and repeating the proceedure.
Arbitrage is hard as examples happen infrequently but very profitable if you have a good commission structure and you are constantly replacing deals.
Q: Does anyone practice freelance arbitrage as an individual, or do you have to at least have some partners?
It seems like you'd have to have massive resources to actually make a meaningful profit.
A: Arbitrage is an anomaly in the market place that will allow you to make money without using your own money.
The problem is that since we are in a market economy, the theory is that market forces will dictate that arbitrages are far and few in between. What this means is that if there are arbitrage opportunities, the margin are almost always extremely small and they don't last very long. Huge investment companies such as Goldman Sachs have billions of dollars each year budgeted specially for arbitrage opportunities so they have analysts dedicated to spot such opportunities. Since such huge players are involved, once they spot an arbitrage and act on it, the market will correct itself eliminating the arbitrage.
To compete with that, unless you have huge resources, it will be almost impossible for an individual to practice freelance arbitrage.
Q: Sports Arbitrage Trading and NBA Basketball Picks - Betting System That Works?
Is there a sports betting system that actually works?
A: There are a number of online systems that 'claim' to offer x% returns on winning computer generated picks of NFL or NBA. It's best to be wary of such systems as the betting odds are heavily skewed against you.
Sports arbitrage trading is a method similar to the stock markets where profits are made from the price difference in two markets - say cash market and futures market. The difference in price creates an immediate risk-free profit that is independent of the subsequent movement in price of the instruments traded.
A similar concept applied to sports betting works to 'reduce the risk of loss' to you (the bettor) and 'attempt' to maximize gains from a placed bet. The idea is to leverage opportunity risk in your favor and exploit known anomalies in the betting patterns. It is these very anomalies that help generate profits on sports picks - be it baseball, basketball, football or even horse racing.
One system you can look into is 'Sports Betting Champ' by Dr John Morrison. Dr Morrison is a sports statistician from Cornell University and a veteran of across-the-board sporting picks. Pre-season trends and other parameters (which he reveals in his course) help him zero in on possible game plays for the season and narrow down the opportunity window to specific profit plays.
Check it out for the videos of those who have used it and swear by it. It could very well give you the betting advantage that you're looking for.
Q: Can someone explain to me what deterministic arbitrage is?
A: Arbitrage involves buying and asset at one price and immediately selling it at a higher price elsewhere.
An example; IBM stock trades on more than one exchange. Not only does it trade on the NYSE, but it also trades on the AMEX and the regional exchanges I believe.
Let's say on the NYSE, the price of IBM is $50.00, but on the AMEX, the price is $49.75. In arbitrage, you buy IBM on the AMEX and immediately sell it on the NYSE at $50.00, locking in a guaranteed 25 cents per share profit. Generally, arbitrage is for the big boys as in order to make money above the costs involved, you need to buy large numbers of share. And because the arb may exist for only a few moments, you need computers constantly scanning the markets and be able to make the trades in a matter of seconds. Only the big boys have that kind of money and computing resources.
Q: Does anyone know of a brokerage firm that allows you to participate in arbitrage?
i.e buy a stock on say the german exchange and sell it on the new york stock exchange
A: There should be no brokerage firm that "disallows" arbitrage. If you have found one that does, you should report them to the SEC. The problem may be that they simply don't offer stocks on the foreign exchange.
With the advanced technology today, and computers that constantly screen and compare prices, the bigger financial houses make this almost impossible to profit from for the smaller investor.
You're probably not taking into account the bid/ask spread, slippage, and brokerage fees, especially of the foreign exchange.
Q: What is meant by "DJ Arbitrage Spreads On Pending Mergers & Acquisitions"?
A: To build on Kevin's answer, the time value of the spread can be used to guage the relative certainty or lack of certainty the market sees in the merger/acquisition being consumated. A large spread means there is still risk. A narrow spread usually means it's a safe bet.
Q: I am looking for a sport arbitrage calculator that can enter more than 10 outcomes?
anyone?
A: Try here:
http://www.sports-arbitrage.com/#
Q: Is there a difference between dividend exposure vs repo exposure for Index Arbitrage?
What is repo exposure for index arbitrage? what's the difference between Repo exposure vs dividend exposure for Index Arbitrage?
A: Repo is the repositioning rate which is the rates on Federal Funds. When it moves down there is chances of your short term bond holding to go up in value. So anticipating or forecasting these rates you can gain better yield than the risk free rate in the short run.
Dividend exposure is when at the announcement of dividends the value of the stock goes down by that amount and if you short sell anticipating this you can get an yield equal to the dividend yield.
When you predict these movements you get related movements on the Index pointing these insturments and you can make profits made on correctly calling the directions. This is called Index arbitrage.
Q: Does anyone know anything about sports arbitrage or financial arbitrage software?
A: Yes Peter, my business partner and I have been working sports arbitrage for about 10 months now. We use software called “SureBetPro” provided by a company called “RiskFreeProfit”. Here’s my business partner’s Web site:
http://mybiz.riskfreeprofit.com/
...it costs us $140 per month to subscribe to this software, this enables us to receive the ‘arb’ advice, which is streamed to my computer 24-hours a day.
Now there are a number of other companies that basically offer the same deal. A very good Web site to investigate further is that of Alan Seymour:
http://www.sportsarbitragereview.co.uk/
Although his site is a little out of date, it’ll definitely provide you with a lot of useful information. I believe Alan favours software called “ArbAlarm” from “Zero-Risk Arbitrage”:
http://www.zero-risk-arbitrage.com/
...which unlike “SureBetPro” actually gives you a free trial.
Another site to check out is BetBrain:
http://www.betbrain.com/
They’ve just recently introduced – within the past 6-months, a pay service which I’ve heard is pretty good. Although I’ve never used this pay service of theirs, I still get the odd arb or two off their free service!
Out of the three services mentioned here (IMHO) I think that SureBetPro and ArbAlarm are pretty much the same. They utilize pretty much the same sportsbooks (bookmakers) although at the end of the day ArbAlarm is about $100 more expensive per month. BetBrain is comparable in price with ArbAlarm but with their service you just need to login to their Web site (which means that you don’t need to download proprietary software – like SureBetPro or ArbAlarm). Another important thing to note about BetBrain is that they incorporate a lot more sportsbooks into their arbing service; therefore they do have more arbs each day than the aforementioned SureBetPro and ArbAlarm.
I hope this helps a little! Good Luck to you then Peter!!
Q: Does anyone know tax laws for sports arbitrage in Canada and the USA?
Hey-
I was interested in getting into sports arbitrage, so does anyone know the tax laws for that in Canada and the USA? Is there a limit on how much one can make or be taxed on? Any advice, tips or contacts would be greatly appreciated. Sports betting is totally legal in Canada at least. I just made a bet on hockey last night at the lottery website. thanks so much everyone
A: Sports betting -online at least- is illegal in the States, but the IRS has a place on your tax return to claim illegally made money, so if you choose to claim it, I guess you could. I think Canada is the same way the UK is and it's tax free.
Q: Has anyone ever gotten into arbitrage here?
I know very little about it, only from a few Econ courses. I understand how it works, but how would an individual go about getting into it?
I imagine it would take a lot of time because you'd have to pay attention to the exchange rates constantly (unless there is software out there that does this....I don't know).
Just wondering if any one has tried it at the individual level. Is it worth it at the individual level? Can you recommend any good resources for learning more about it?
Thanks!
A: The biggest hedge funds and investment banks hire Ph.D.s from places like MIT to develop trading strategies. Any worthwhile positions where arbitrage might exist are immediately exploited.
Think about it like this. If the masses could earn riskless profits in excess of transaction fees with just a few econ courses in their back pockets, how long do you think the opportunities would exist in an efficient or semi-efficient market?
If you want to pursue a trading strategy that doesn't simply track a index, read up on some of the persistent return anomalies (i.e. momentum, book to market) in the finance academic literature. These are still contentious among academicians, so don't expect to find a how-to guide.