Arbitrage and market efficiency

This is a discussion on Arbitrage and market efficiency within the Economic & Fundamental Analysis forums, part of the Methods category; Apologies in advance if this is in the wrong sub-forum. My question is fairly simple, though I'm sure any answers ...

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Old Oct 15, 2011, 3:45am   #1
Joined Jul 2011
Arbitrage and market efficiency

Apologies in advance if this is in the wrong sub-forum.

My question is fairly simple, though I'm sure any answers won't be simple. How much 'loose change' do market participants drop in your view? I know it is a widely held view that capturing arbitrage opportunities is difficult, or is even said to be impossible for those without the necessary technology (and the requisite technology is so expensive to develop due to the high salaries paid to the designers); so it is possible for someone with a keen eye for the markets, a good understanding of how algorithmic trading machines work and all the available public information to exploit enough arbitrage opportunities to be able to generate consistently good, market neutral returns?

Could you run a fund which delivered consistent 15-20% per annum returns on a large capital base simply by exploiting the technical inefficiencies of the market, rather than by assuming a position on the the general movement of the economy or a certain industry?

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Old Oct 15, 2011, 10:45am   #2
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Re: Arbitrage and market efficiency

What is a "technical inefficiency" in your view?
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Old Oct 15, 2011, 11:49am   #3
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Re: Arbitrage and market efficiency

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Originally Posted by jthetrader View Post
so it is possible for someone with a keen eye for the markets, a good understanding of how algorithmic trading machines work and all the available public information to exploit enough arbitrage opportunities to be able to generate consistently good, market neutral returns?
No, because a sharp eye can never win the battle of speed against a computer, ever. It's not about being sharp anymore, it's all about speed.

Last edited by anley; Oct 15, 2011 at 11:55am.
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Old Oct 15, 2011, 11:54am   #4
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Re: Arbitrage and market efficiency

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Originally Posted by jthetrader View Post
Could you run a fund which delivered consistent 15-20% per annum returns on a large capital base simply by exploiting the technical inefficiencies of the market, rather than by assuming a position on the the general movement of the economy or a certain industry?
Yes, this is very possible and many are doing it, and have been doing it for years.

But again, if you don't have a R&D budget to match the existing players then you, me or anyone else has little chance. It's all down to machines now, he who has the best and fastest machines and who can program them the best, will win. Add all of that together and you're talking big money.
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Old Oct 15, 2011, 12:56pm   #5
 
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Re: Arbitrage and market efficiency

Tibra trading do/did fx mm and arbing. They used to use t2w and were quite approachable. Why not send them a pm.
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Old Oct 15, 2011, 2:23pm   #6
 
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Re: Arbitrage and market efficiency

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My question is fairly simple, though I'm sure any answers won't be simple. How much 'loose change' do market participants drop in your view?
Nothing...nada, nichivo...
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Old Oct 15, 2011, 6:20pm   #7
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Re: Arbitrage and market efficiency

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Tibra trading do/did fx mm and arbing. They used to use t2w and were quite approachable. Why not send them a pm.


I just looked on their website and it appears I'll need to finish my degree first in order to be in with a shot at being a trader for them.
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Old Oct 16, 2011, 6:37pm   #8
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Re: Arbitrage and market efficiency

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What is a "technical inefficiency" in your view?
Any situation where an arbitrage opportunity exists.
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Old May 28, 2012, 11:04pm   #9
 
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Re: Arbitrage and market efficiency

Arbitrage opportunities are scarce because of technological advances and high competition. The guys who still engage in arbitrage usually do so because they have a technological advantage (more computing power, closer to data grid, more efficient algorithms etc.).
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