Definition of arbitrage trading: Arbitrage trading refers to a transaction party that uses the price difference of one or more securities in different markets to buy and sell the corresponding securities to earn spreads. At the beginning, arbitrage trading only included those risk-free or very low-risk trading strategies, but with the diversification of market trading methods, some event trading strategies and short-term trading strategies have also been named arbitrage, which is difficult to give now All arbitrage trading models in the market have a unified definition.
1. ETF arbitrage
Principle: Use the characteristics of ETF funds that can be bought and sold in the secondary market and redeem in the primary market, and use the deviation between the net value of the primary market and the price of the secondary market for arbitrage. There are three commonly used strategies: instantaneous arbitrage, delayed arbitrage and event arbitrage.
1.1, ETF instantaneous arbitrage
There are two types: discount arbitrage: When the price of the ETF in the secondary market is lower than the net value of the primary market, you can buy the ETF from the secondary market, then redeem it in the primary market to get a basket of stocks, and finally put the basket in the secondary market Stocks are sold; premium arbitrage. When the price of the ETF fund in the secondary market is greater than the net value of the primary market, you can buy the constituent stocks of the ETF basket in the secondary market, then subscribe to the ETF fund in the primary market, and finally put the ETF fund in the secondary market. The market sells. The specific route map is as follows:
The benefits of ETF instant arbitrage mainly depend on two conveniences, one is the degree of discount and premium, and the other is transaction costs. Transaction costs are as follows:
- ETF subscription/redemption fees, handling fees, transfer fees, securities management fees, securities settlement fees, about 3bp;
- Stamp duty, sell 10BP, ETF fund sell does not need;
- ETF secondary market commission, stock trading commission, about 3BP;
- The market shock cost is about 10BP.
The fixed cost of ETF premium arbitrage is about 29BP, and the fixed cost of ETF discount arbitrage is 39BP. There are still few opportunities for ETF arbitrage.
1.2, ETF delay arbitrage
This is different from instantaneous arbitrage, which is mainly judged by judging the future trend, and then using the characteristics of ETF fund trading and redemption to conduct T+0 transactions. There are two ways to carry out delayed arbitrage. Since selling ETF funds does not require stamp duty, the transaction cost of premium arbitrage is 10BP lower. Therefore, ETF delayed arbitrage generally uses premium arbitrage trading.
1.3, ETF event arbitrage
Mainly use some ETF cost stocks to suspend trading, and use ETF funds to buy or sell suspended stocks that are not possible in the secondary market.
2. LOF arbitrage
Principle: The use of LOF funds can be traded in the secondary market, and can be redeemed in the primary market. The spread between the net value of the primary market and the price of the secondary market is used for arbitrage. LOF arbitrage is similar to ETF arbitrage, but there are differences:
- The ETF fund exchange publishes its net value every 15 seconds, and the LOF fund publishes its net value every trading day;
- After the successful subscription of ETF, it can be sold on the secondary market on the same day, and after LOF subscription (T day), you can only sell LOF shares in the secondary market on T+2 day. Therefore, LOF premium arbitrage needs to bear the risk of price changes in two trading days;
- After buying an ETF in the secondary market, you can apply for redemption of stocks and sell them on the same day; after buying LOF in the secondary market, you need to wait until T+1 to apply for redemption of stocks. Therefore, LOF discount arbitrage needs to bear one trading day The risk of price changes.
- When subscribing and redeeming shares, ETF funds use a basket of stocks and have a minimum size limit, while LOF uses cash and has no size limit.
Due to insufficient trading activity in the LOF fund market, there is little room for arbitrage.
3. Closed-end fund arbitrage
Principle: Using closed-end funds for long-term discount trading, when the “closed-to-open” approach is adopted, the price of the closed base will move closer to the net value, and the final discount rate will eventually return to 0. Investors can start from the second level before the closed base expires. Close-end funds are bought at a discount in the market, and then held to maturity. The prerequisite for the success of this kind of arbitrage is that the net value of the fund rises before expiration. If the market drops sharply, then the arbitrage gains will be discounted, or even losses.
4. Hierarchical fund arbitrage
Principle: Use the characteristics of tiered funds to subscribe in the primary market and buy and sell in the secondary market for arbitrage. The hierarchical fund arbitrage process is shown in the following figure:
5. Stock index futures arbitrage
5.1, stock futures arbitrage
Principle: When the price of stock index futures is higher than the spot price, which is greater than the holding cost and transaction cost of the spot, you can buy spot and sell futures. When the futures contract is approaching the expiration date, the spot price difference will converge and be flat at the same time Spot and futures positions, complete arbitrage transactions. Or if the spread reaches a favorable position, you can also close the trade in advance. The key to future arbitrage is the simulation of the CSI 300 spot and the control of transaction costs. Due to the imperfect short-selling mechanism in the Chinese market, only positive arbitrage can be done, that is, arbitrage can only be carried out when the price of stock index futures is greater than the spot price.
There are three methods for simulating the CSI 300 index spot: full copy method, sample copy and ETF portfolio copy. Among them, the full copy method has the best tracking effect, but if you want to buy 300 stocks at the same time, the actual operation will be more difficult. You can also use 300ETF to replicate.
The cost of forward arbitrage transactions is mainly caused by:
- Fixed transaction costs: futures trading commission, stock or ETF trading commission, stamp duty, etc.;
- Market shock cost: the market shock cost of futures transactions, the shock cost of the spot market;
- Spot simulation cost: the tracking error of the spot simulation portfolio to the CSI 300 Index.
The current month contract of stock index futures has sufficient liquidity, and the contract expiration date is short, which can improve the efficiency of capital utilization. It is more suitable as a cash arbitrage. When the current price difference of the current month contract is more than 40 points, the cash arbitrage will be compared Good margin of safety.
5.2. Stock index futures intertemporal arbitrage
According to the cost of holding model, the price of stock index futures contracts should be equal to the spot price plus the holding costs incurred from holding to maturity. With the risk-free interest rate and the dividend rate unchanged, the price difference of futures contracts with different maturities is Changshu. However, the actual market price does not fluctuate around theoretical prices, and may cause major deviations. You can buy and sell stock index futures contracts of the same type and different price months at the same time, in order to change the two contracts with different delivery months at a favorable time. Hedging and closing positions for profit.
6. Convertible bond arbitrage
Principle: There are two operating methods for arbitrage by using the converted value of convertible bonds to be greater than the market price:
- Investors can buy convertible bonds on the same day (T day) and sell stocks on the next trading day (T+1 day). Under this arbitrage trading method, investors need to bear the risk of stock price changes on a trading day, which is also The key to the success of arbitrage trading.
- In the case that the underlying stock can be shorted, investors can sell stocks through securities lending, then buy convertible bonds, and use the stocks obtained from the exercise of the convertible bonds to close their short positions in securities lending. In this way, there is no need to bear the risk of stock price changes. When the discount space of the convertible bond is greater than the transaction cost, arbitrage can obtain a positive return.
7. Market neutral arbitrage
That is, by resuming the long and short stock portfolios separately in the stock market, hedging market risks, obtaining relatively stable spreads, using the characteristics of reciprocating changes in spreads, low buying spreads, high selling spreads, so as to achieve arbitrage, statistics Arbitrage is one type of arbitrage.
8. Commodity futures arbitrage
Commodity futures arbitrage is similar to stock index futures arbitrage, but it is slightly different. There are four main methods:
8.1. Cash arbitrage
Similar to stock index futures, but commodities have storage costs, while stocks have no storage costs and have cash benefits. Therefore, the two are not the same. Please also pay attention when calculating.
8.2, intertemporal arbitrage
Similar to stock index futures, I will not repeat them here.
8.3. Cross-market arbitrage
It is an arbitrage method that mainly uses the difference between the domestic and foreign market prices of the same commodity to obtain the profit from the fluctuation of the price difference. This type of arbitrage is generally to place opposite positions on the same or similar futures contracts in the two markets at the same time, and close the positions at the same time after a favorable change in the spread.
8.4, cross-species arbitrage
Use the correlation between commodities for arbitrage. For example, the two commodities are upstream and downstream products, or can be substituted for each other. Although the varieties are different, the market supply and demand relationship reflected is the same, and the price difference between each other should be maintained at a reasonable level. . If the price difference between the varieties far exceeds the normal price difference, you can buy a relatively low commodity, sell another relatively high commodity, and wait for the price difference to return to achieve arbitrage. There are two common cross-variety arbitrages, one is arbitrage between related commodities, such as wheat and corn, rape oil and soybean oil; the other is arbitrage between raw materials and finished products, such as soybean and soybean oil extraction and reverse oil extraction arbitrage.
The above content is excerpted from "Overview of Arbitrage Trading Strategies" by Haitong Securities Research Institute