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High-risk arbitrage trading strategies

high-risk arbitrage trading strategies

relative prices of the convertible bond and the stock; the arbitrageur of this strategy would think the bond is a little cheap and the stock is a little expensive. But, because observable price inefficiencies tend to be quite small, pure arbitrage requires large, usually leveraged investments and high turnover. Arbitrage is the exploitation of an observable price inefficiency and, as such, pure arbitrage is considered riskless. The futures contract is a promise to buy or 365 binary option demo account broker sell the stock at a predetermined price.

Risk Arbitrage Trading Strategy

high-risk arbitrage trading strategies

However, as the convertible bond and the stock can move independently, the arbitrageur can lose on both the bond and the stock, which means the position carries risk. In practice, arbitrage python fx data is more complicated, but three trends in investing practices have opened up the possibility of all sorts of arbitrage strategies: the use of derivative instruments, trading software and various trading exchanges. The idea is to make money from the bond's yield if the stock goes up, but to also make money from the short sale if the stock goes down. Only a few hedge funds are pure arbitrageurs, but when they are, historical studies often prove they are a good source of low-risk, reliably-moderate returns. For example, convertible arbitrage entails buying a corporate convertible bond, which can be converted into common shares while simultaneously selling short the common stock of the same company that issued the bond. Further, arbitrage is perishable and self-defeating; if a strategy is too successful, it gets duplicated and gradually disappears. Most so-called arbitrage strategies are better labeled " relative value." These strategies do try to capitalize on price differences, but they are not risk free. So, by purchasing the stock and simultaneously selling the futures contract, you can, without taking on any risk, lock in a 4 gain before transaction and borrowing costs. Consider a very simple example: Acme stock currently trades at 10 and a single stock futures contract due in six months is priced.

Arbitrage Strategies - Investopedia
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Risk Arbitrage Trading Strategy Risk Arbitrage
Risk Arbitrage Trading Strategy - Risk arbitrage
Risk Arbitrage Trading Strategy - Risk Arbitrage

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