Many wanted to known about the arbitrage
The buying and selling of financial instruments on different markets in order to take advantage of different prices between the markets. Before markets became truly international, the game usually involved dealing in different countries (for example, the foreign-exchange markets in New York or London). Today, arbitrageurs (the name given to those who practise it) are more likely to trade between baskets of different instruments and between the physical and futures markets. For example, a trader might swap euros for dollars and lock in a gain by selling the dollars forward in the futures market. A similar trade could involve buying and selling interest-rate contracts for one or more currencies. An investor could also profit by buying a block of shares in one market and repackaging them for sale in another. In theory, as information travels more quickly, the opportunities for arbitrage should diminish because markets operate more efficiently. In practice, however, the growing diversity of financial instruments (particularly derivatives of one sort or another) is increasing the opportunity for arbitrage, especially for sophisticated investors.
I tried to bring out it in simple terms
The buying and selling of financial instruments on different markets in order to take advantage of different prices between the markets. Before markets became truly international, the game usually involved dealing in different countries (for example, the foreign-exchange markets in New York or London). Today, arbitrageurs (the name given to those who practise it) are more likely to trade between baskets of different instruments and between the physical and futures markets. For example, a trader might swap euros for dollars and lock in a gain by selling the dollars forward in the futures market. A similar trade could involve buying and selling interest-rate contracts for one or more currencies. An investor could also profit by buying a block of shares in one market and repackaging them for sale in another. In theory, as information travels more quickly, the opportunities for arbitrage should diminish because markets operate more efficiently. In practice, however, the growing diversity of financial instruments (particularly derivatives of one sort or another) is increasing the opportunity for arbitrage, especially for sophisticated investors.
I tried to bring out it in simple terms
No comments:
Post a Comment