The arbitrage strategies we generally use mainly include ETF arbitrage, futures arbitrage, option hedging and volatility arbitrage. They each have their own characteristics. ETF arbitrage strategies look for price deviations, place orders quickly, and obtain "cash to cash". Arbitrage income. Futures and spot arbitrage automatically monitors the multi-variety spot price difference of multiple exchanges in real time, and relies on the statistical arbitrage model to obtain continuous and stable income. Option hedging provides institutional clients with a more flexible hedging scheme using the exercise of options. Volatility arbitrage is a delta-neutral strategy. Profit from the dimension of implied volatility.
These strategies are used in different markets, including stocks, futures, options, and spot markets. The corresponding trading varieties are also the same. If there is no system and program to help, we can't see it at all. Let's take the most commonly used ETF arbitrage and futures arbitrage as an example to see what arbitrage is.
Let’s first look at ETF arbitrage strategies. What is an ETF arbitrage strategy?
First, we need to know what an ETF is. ETF, the Chinese name is "index stock fund" ETF is essentially a security that tracks an index, industry, commodity, or other asset, has a related price, and can be traded on a stock exchange like ordinary stocks.
For example, the SSE 50ETF consists of 50 blue-chip stocks from various industries including China State Construction, Sinopec, Ping An, Guotai Junan, Yili, Kweichow Moutai, etc.
This kind of index fund composed of a basket of stocks is like a fruit gift box, which contains a variety of fruits, and the fruits in the gift box can be bought separately in the market. Everyone has bought fruit, the same amount of fruit, there is a price difference between the gift box and the bulk. Since there is a price difference, we have an opportunity for arbitrage.
In ETF arbitrage, there are generally two types of arbitrage behaviors, discount arbitrage and premium arbitrage.
What about discount arbitrage?
When traders find that the trading price of the ETF secondary market is lower than the net value price of the primary market, it is just like we found that the gift box of fruit is cheaper than the one sold in bulk, then we can buy a bunch of gift boxes, and then unpack the gift boxes Drive to the roadside to sell bulk fruit and earn the difference between the two. In ETF arbitrage, traders buy ETFs at low prices in the secondary market, and redeem ETFs at a standstill in the primary market, that is, exchange ETF funds for a basket of stocks, and then sell the exchanged stocks in the secondary market Convert to cash.
Let's talk about premium arbitrage. Premium arbitrage is an operation that is done when the ETF price in the secondary market is higher than the net value of the primary market. Let's continue with the example of buying and selling fruit. We found that bulk fruits are now very cheap, so we buy all kinds of bulk fruits and buy them in fruit baskets or gift boxes to earn the difference. In ETF arbitrage, traders buy a basket of stocks corresponding to ETFs from the secondary market, and then use this basket of stocks to go to the primary market to subscribe for ETFs from fund companies, that is, exchange a basket of stocks for ETF funds, and then go to the ETF funds obtained. In the secondary market of the ETF, the cash is obtained by selling it at the transaction price (high price), thus realizing the "cash to cash" arbitrage transaction
Of course, this kind of operation needs to deduct various transaction fees and costs. Otherwise, it will be very unfair to find that the loss is due to the handling fee after one operation. This is the principle of ETF arbitrage. It is easier to understand through the example of buying and selling fruit.
After talking about ETF arbitrage, I would like to introduce to you a commonly used arbitrage method, that is, futures and spot arbitrage . The premise of spot arbitrage is that the things we want to trade must exist in futures and spot. Because there is a price difference between futures and spot, or in other words, if there is a price difference, there will be arbitrage opportunities.
So how do we do term arbitrage? Let's take another example. Suppose we want to make money by pouring rice now. Then we can do the following two operations. Operation 1: We buy rice in the market, that is, buy spot. Operation 2: Borrow rice coupons from farmers and sell them, and agree to return the same amount of rice after one month. This operation is to sell rice futures in the futures market, also known as empty rice futures.
Then we will do arbitrage according to this idea. Suppose we buy 1 catty of rice at the price of 4 yuan / catty in the vegetable market at this time, and at the same time ask the farmer to borrow a 1 catty grain ticket, the face value is 5 yuan / Jin, after a month, we don't want rice or food stamps, just money.
Then we can see what will happen in a month: in the first case, the price of rice on the market has dropped to 2 yuan/catties a month later. Then we actually lost 2 yuan when we bought spot rice and then sold it, but if we sold the 5 yuan/catties grain stamp at the time and returned 1 jin of rice to the farmers a month later, then we actually made a profit 3 bucks. So we ended up making 1 dollar in the end.
Then there is the second situation. After one month, the price of rice on the market has not changed, and it is still 4 yuan/catties. Then we are buying spot rice and then selling it, without losing money or making a profit, but we only made 1 yuan by selling the 5 yuan/catties food stamp and replacing it with other people's food. So the most popular we can also make a profit of 1 yuan.
Finally, there is the third situation. After a month, the price of rice on the market has risen to 6 yuan/catties. Of course, our country will not let the price of rice rise so high. Here is an assumption for the sake of example. Then let’s see that if you buy spot rice and then sell it, you can earn 2 yuan. If you sell the 5 yuan food stamp and then return the rice, you will lose 1 yuan, and finally make a profit of 1 yuan.
I don’t know if you have noticed that whether the price is up or down, we can use cash arbitrage to safely get a profit of 1 yuan. The profit obtained is actually related to the price difference between spot rice and rice futures.
Of course, this is an ideal situation. In practice, we need to consider whether transaction costs and prices tend to be equal. The above two arbitrage methods can also be done by retail traders, but it is difficult to have the energy to monitor so many signals, and the risk level will be greatly increased. And we do quantification in order not to miss the instantaneous opportunity of ETF and futures arbitrage, improve our network stability and speed from hardware, allow us to accept price fluctuations in a more timely manner, and improve the speed of the operation of the trading strategy program from software And the number of tested varieties, do not miss any entry opportunity, and do not miss any risk warning, to ensure that the account can run stably and grow steadily.
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