Arbitrage

[sak07]

Does anybody know what the spread beting companies make off this...ie are they bothered by it or don't they really care. I thought this was quite rare to see but since I have been looking on a dailly basis at various spreads I've noticed there is quite a few oppurtunities around.

Does anyone do this consistently?

 

[delboy trotter]

Hi sak07, welcome to T2W.

Could you give us some examples of the type of arbitrage situations that you have come across. I haven't noticed many myself, then again I have not been looking for them.

dbt

 

[Bigbusiness]

I think it is hard to arbitrage with the wide spreads. Also Deal4free roll-over their bets but other companies close them at the end of the time period. It might look like there is an opportunity but taking advantage of it could prove difficult.

 

[sidinuk]

I looked at doing this last year. At the time IG index had an antiquated system where you had to request a quote before dealing, you then got a few seconds grace before the quote was pulled. City Index had an instant deal system so you got the price on the screen. By getting a quote from IG and waiting a few seconds for City Index to move you could grab a few points risk free.

The problem was that there were too many if's involved. If IG pulled the quote after placing the trade with City Index. If City Index reject the trade for some reason after your placed it with IG. If your a fraction of a second too slow in placing the second part of the trade. All of which can cost considerably more than the few points you could have made.

You need to keep 2 accounts well funded thus reducing your overall return. You also need to sit glued to the screen watching for opportunities.

In the end I didn't think it was worth it. Possible, just not worth the time, effort and risk.

 

[sak07]

In theory how big does the spread difference have to be ? Am I right in assuming that even a difference of 1 point can be abitraged if you can get on in time....how about a 0.2 difference between a spread could that be abitraged.

Also Sidinuk Im curious how would keeping both accounts well funded reduce your overall return...or are you simply talking about cash flow into your account.

 

[Trader333]

The best opportunites for arbitrage are in Horseracing via the betting exchanges but then you still have to be quick.


Paul

 

[superboy101]

Hello,

I assume what you want to do is take advantage of a market movements by holding a quote on platform 1 and watching the product rise\fall above on platform 2 and execute the trade on the platform 1 once it has broken out of the quoted spread?

This has a few issues I can see.

1 - Timing to ensure you execute in a timely manner
2- Market strength and volume to sustain the movement

The "arbitrage" as far as I can see can not be executed due to these points as in practice the market\trading platform will move too quickly for you to react.

The only non-executable arb to be had is between two platforms for example.

A Bid 10 Offer 14
B Bid 15 Offer 19

I have seen this scenario occur often.

You can buy platform (a) sell platform (b) but this leaves you with the problem of closing the trades.
Deals are non transferrable so this could not work. If there was a "central platform" that acted as an exchange for 1 legged trades and would take a trade executed on another platform than it would work but it would mean again trying to beat the spread offered by the "central platform"....

I do not beleive this to be possible and so it is not an arbitrage (riskless profit).

Thanks

Superboy101

 

[sidinuk]

Sak07,

If you are arbitraging between 2 spreadbet firms then you need to fund the margin requirement for the trade on both accounts, therefore doubling your overall margin and halving the overall return for the money that you have tied up in the accounts.

Also you need to have enough in the account not just to cover one trade but also a possible series of losing trades. If you spot an arb opportunity on the dow for example and then can't find a reversing arbitrage trade then you need to run it until the end of the day by which time one of your accounts could be showing a big loss, albeit offset by a big gain in the other account. You then won't be able to get the cash out of one account and into the other to make up the loss before the next day's trading.

All in all, you'd be better off just putting the cash in the bank!

 

[Bigbusiness]

I suppose if you have two accounts that close bets on the market close it would avoid having to pay for the spread when closing the positions. But it still seems a tricky thing to do when the amount of points to gain are small and the possible loss if something goes wrong is large.

 

[superboy101]

Arbitrage is defined as riskless profit and this is not riskless so cannot be arbitrage. at best this can only be described as trading a spread.

 

[jojo]

Superboy,
your example in terms of buying platform A and selling platform B is an excellent one, and if both platforms are the same futures with the same expiry, then simply do nothing and let both platforms run to expiry. In other words, both platforms have to expire @ the same expiry level.

 

[superboy101]

jojo,

Thats not gonna work as the execution would need to be instantaneously legged (executed buy\sell, buy\sell) to qualify as an arbitrage.

Furthermore running to expiry 2 contracts only creates value if the closing price @ expiry occurs in the middle of the Bid offer spread you have traded and the probability of that occuring is not high.

Should the price @ expiry be above or below you need to discount firstly the value of your losing trade on the other platform and secondly the spread of legging in again to close as you are assuming the spread will be the same as when you opened the trade which it probably will not be.

My view is still that there is currently no arbitrage or "spread trading" possible between platforms. If there is please could someone explain how it is possible.

Any how jojo, sell S&P and FTSE please.

 

[mpjordan]

I saw late one sunday night cantor showing daily dow at 9310 9320 and ig 9327 9337 you buy at 9320 and sell at 9327.as they both use the same closing price you are garanteed 7 points. Thats abitrage isnt it? one big problem though is that to make 7 points interesting you must place a large bet and if the market moves strongly you will need to finance the losing half of the bet.
At the end of the day though you know you will make 7 points

 

[superboy101]

mpjordan,

I beleive you are incorrect here and post my reasoning.

1 - The trades are not closed instantaneously thus leaving you exposed to price risk.

2 - Trades can not be exchanged between platforms so the "arbitrage" you talk about can not be closed by entry trade cantor being cleared by exit trade IG.

3 - The guarentee of 7 points is incorrect as you have no way of closing these trades against each other.

Note - You are assuming you can trade cantor against ig which you cannot and so therefore you are trading a spread and not an arbitrage (riskless profit).

For a trade to be an arbitrage you need 2 platforms of execution that accept the same contract both buy and sell. You can do this on voice arbitraging screen only in spreadbetting. For example if I heard dow was 9310@9320 on voice trading and 9327@9337 on screen that is a potential as I can instantly execute the trade and that would constitute an arbitrage or riskless profit. By trying to trade across different spreadbetting platforms this is not an arbitrage merely a spread trade, ie you are betting the spread of the platforms will realign to a point where you will make money. If they trade in a 5 point range until close then you make nothing.

I hope this clears this up but if you feel it is incorrect please reply. I am a energy trader and trade electricity which is one of the few commodities wher you can happily sit and arbitrage all day long due to the inefficiency of the market place.

Cheers,

Superboy

 

[wysinawyg]

Superboy,

I think the problem here is in your understanding of spread bets, although its not inconceivable that it is mine

If you leave a spread bet to expiry (or possibly MOC depending on the broker) AFAIK you get taken out of the contract at the price of the underlying. No spreads and no reliance on the SB companies to close the gap. Hence you can just open trades in the opposite direction and rely on them both being settled at the same price as the settlement price would be of the underlying (and not the broker).

Having said all that, it isn't true arbitrage as you are taking credit risk on the two brokers. However, as long as the counterparty doesn't fall over, it is otherwise a risk free profit.

wysi

 

[mpjordan]

Superboy
1) the deal i outlined cant be done instantoulsy you have to wait for the bet to expire. There is no exposure to price risk. You know that both companies will use the same expiry price. Where they go during the day ia unimportant.
2)Yes,i agree you must wait for the bet to expire( one day)
3) you must let them expire!
If the defition of arbitrage is an instant risk free profit, then i agree my example is not arbitrage. I'm not sure if 'arbitrage' is qualified by a time period.
mpj

 

[warm_machine]

True arbitrage isn't possible across standard trading systems as far as stock trading is concerned. However, with forex, you should be trading on spread of 3/4 pips max, so in a fast market it's possible to make up to 10 pips. It works best with economic data releases. Your opening trade is made with an instant execution electronic broker ie. there are no dealers thus no requotes so you either trade your price or nothing - it is important that you make the opening trade as quickly as possible - a dealer based broker simply won't allowed this. Then, if there is a difference make the opposing trade with a requote based broker (as a twin electronic white label broker system is unlikely to offer any arb ops) who will fall over themselves to let you trade against the sharp market move and fill you instantaneously. Wait a few seconds for the market to settle and square both trades.

 

[ColinRiche]

I am a energy trader and trade electricity which is one of the few commodities wher you can happily sit and arbitrage all day long due to the inefficiency of the market place.

Can you elaborate on the above statement....

Where does one go for information on this subject and what brokers trade this ?

cheers

 

[jklondon]

There are little if any arbitrage opps in SB that can be taken advantage off. If the SB companies had APIs to execute deals automatically then this may be different ...but they dont for this reason !