Arbitrage opportunities at retail level?

[tommog]

Hi,

Looking at jobs with futures prop firms there seems to be a lot of demand for arbitrage traders. I was hoping to find a little more about this form of trading, my understanding is this is moments of disparity in the price between two closely correlated products. But for people that dont work for a firm is arbitraging on an intraday basis possible? Or is it something that happens very rarely that only highly funded computers exploit before individuals even see it happening. Or is it something a level2 trader could exploit multiple times a day

I put this thread in the derivatives section of the board assuming derivatives traders are likely to be more experienced in trading and possibly even done it for a firm and also futures seems to be the main market place for "arb" opportunities, but i am also interested to learn if this can be done in all forms of trading whether its spot forex, options, futures etc

Thanks for your time

Tom

 

[Bigbusiness]

Nick leeson tried arbitraging price differences between Nikkei futures traded on the SIMEX and Japan's Osaka exchange. Not sure how it went

Probably possible but not easy to get out when for some reason one side of the trade goes wrong.

 

[Anonymous]

Arbitrage opportunities occur in many products, if you sit in front of the computer looking at the right stuff or at the right platform you are bound to see something through-out a day.

What I remember about Nick's strategy was: price went down he bought, price went down more he bought more, price went down some more he bought some more, price went down even more he bought even more. I am not sure if that is arbitrage.

 

[Bigbusiness]

I think he was supposed to be arbitrage trading and trading for clients but when a few trades went wrong, he then tried to trade his way out of it and it all went Pete Tong.

 

[rog1111]

Hi Tom

I have been quite active in this area (I am a fairly accomplished trading programmer), and I would say that it will be difficult if not impossible to compete at retail level over short intraday time frames. Generally you will need a fast PC and a direct line to the exchange at the very least, in addition to a custom built autotrader, and also super-low commissions if you are trading on the wrong side of the bid/ask.

Not that I want to totally negative about this, longer timeframes are quite feasible, but then you'll need a much larger account just to make it worthwhile.

Just my sixpenneth.....

GL
rog1111

Hi,

Looking at jobs with futures prop firms there seems to be a lot of demand for arbitrage traders. I was hoping to find a little more about this form of trading, my understanding is this is moments of disparity in the price between two closely correlated products. But for people that dont work for a firm is arbitraging on an intraday basis possible? Or is it something that happens very rarely that only highly funded computers exploit before individuals even see it happening. Or is it something a level2 trader could exploit multiple times a day

I put this thread in the derivatives section of the board assuming derivatives traders are likely to be more experienced in trading and possibly even done it for a firm and also futures seems to be the main market place for "arb" opportunities, but i am also interested to learn if this can be done in all forms of trading whether its spot forex, options, futures etc

Thanks for your time

Tom

 

[mauzj]

There are many different types of arbitrage.

"pure" arbitrage is theoretically riskless. For example, you could buy/sell the same product on different exchanges. Or you could hedge a future with a synthetic forward consisting of a long call/short put. However, you'll have no chance of doing that on a retail basis with proper exchanges. Opportunities will arise between spreadbetting firms. And you could give them a go. But be warned that they'll start cancelling your bets after a while.

Another type of arbitrage that you could try is statistical arbitrage. To describe it crudely, you could go long one product and short another if you believed there was a strong correlation between them and that the relationship had stretched. However, this for of trading is not riskless.

Good luck,

fcmisc.