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.
Questions tagged [arbitrage]
51 questions
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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 keep exchanging it for other currencies and finally…
Kaki Master Of Time
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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 interest rate, while the Australian Dollar (AUD) has one…
Joseph Tanenbaum
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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 name for the following activity?
I put a limit…
nponeccop
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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 think this comes under income tax rather than CGT,…
user20748
5
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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 discrepancies due to the recent fall of the Turkish…
Alexander Guyer
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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 those 5 decimals, I expected the closest…
Martin Thoma
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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 an ounce of gold at the current spot price of…
Jon
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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 high, hold the one that is low, use the profit to…
Sridhar Sarnobat
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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 bitcoin at the spot price while simultaneously…
David Deutsch
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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 for shares of the fund. So, for example, if excess…
partyphysics
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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 account and buy back dollars at a casa de cambio…
David
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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 an ADR, you often have to pay an annual fee, but…
Wondering
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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.
Where can I find this information by region (I…
chrisl-921fb74d
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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 to do Bitcoin arbitrage since the price of…
왕뚜껑
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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 investor who received these shares may sell them on…
Daniel
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