Talk:Arbitrage
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Good article, you might want to add that arbitrage is a counterforce for price discriminantion. It is often profitable for a company to price products differently in different markets. Arbitrage counteracts price discriminantion since the prices between the two markets tends to equalize as you buy more in the cheap area and sell in the expensive.
Also something about purchasing power theory might be good too since it is through arbritage that the relative purchasing power between countries is maintained.--ShaunMacPherson 11:06, 11 Mar 2004 (UTC)
This is an very good article. It might also benefit from a discussion of those who buy and sell companies, and make an arbitrage gain by moving assets from one company and putting them into another. For example, when you move assets from a private company into a publicly traded company, there is usually an immediate gain of 20% in the equity value. I did not want to edit this article to say that, as the author is clearly more of an expert than I am. --Kops2222 (talk)13:37, 23 October 2009 (UTC)[reply]
There's no doubt that people reading this article are looking for arbitrage primarily in stocks/currencies etc, but what about having a tiny section about other types of arbitrage, like in Internet Marketing?—Precedingunsigned comment added by24.90.108.139 (talk)20:56, 21 April 2009 (UTC)[reply]
Have you ever considered that many people might want to understand why all the lines at the supermarket are about the same?Signed, user Popemobile 1776— Precedingunsigned comment added byPopemobile1776 (talk •contribs)03:55, 21 November 2015 (UTC)[reply]
$100 Billion is an exaggeration.
There are a few casino games in which the odds are even, and sometimes in the player's favor. The casino still makes money off these games because gamblers usually do not play optimally and also because of the risk of ruin. An example of an even odds bet would be backing up the pass line at craps[1]. Some video poker machines give the player a slight advantage[2].JHG12:36, 23 September 2005 (UTC)[reply]
'Sports arbitrage' is probably an established term but it's inprecise: bookmakers also offer odds on political, pop-culture and other events, some even on financial market events. I would call it 'Betting arbitrage' - I added an article on related practice,arbitrage betting, however it's far from being perfect yet. BTW, how can I make 'betting investment' and 'arbs' point to the same article?Adolg 11:27 18 October 2005, GMT
"For example, it would buy U.S. Treasury securities and sell Italian bond futures. The concept was that because Italian bond futures had a less liquid market, in the short term Italian bond futures would have a higher return than U.S. bonds, but in the long term, the prices would converge. Because the difference was small, a large amount of money had to be borrowed to make the buying and selling profitable."
I am having some trouble understanding the above, can you please elaborate?
From what I understand.Italian bond futures have a less liquid market, in the short term Italian bond futures would have a higher return than U.S. bonds : Because Italian bond futures are cheaper they give higher returns than U.S. bonds. but in the long term, the prices would converge : Should you not be buying Italian bond futures instead? I'm sure I'm missing something. Can you please explain in some detail?
yes the example given does not make sense. nor does the categorization of the negotiated bail-out as "global macro arbitrage" ... that term has a specific meaning which is very different
I've never heard this term before so I don't want to change it, but the definition that "statistical arbitrage is an imbalance in expected values" doesn't seem to be enough. Going long a risky asset and short a safe asset should not be labeled any kind of arbitrage just because of an imbalance in expected value. What seems important about the casino example is that risks are independent so the risk becomes 0 as the number of bets approach infinity (along with a positive expected value).Kyle J Moore01:36, 15 May 2007 (UTC)[reply]
I removed this section because I don't think it's really arbitrage; it's simply that 2 customers pay different prices for a product. It also reads like original research and is unsourced.Simishag04:29, 14 June 2007 (UTC)[reply]
I have removed all but one external link. As far as I can tell they are all link spam for various reasons: clear advertising sites; informational sites that link to paid sites and read like business promotions; and a blog with an insubstantial discussion of something odd that may or may not have something to do with arbitrage. If anyone wants to add them back I would ask them to state clearly why their external link is relevant and not spam. I am not sure on Wikipedia's policy about linking to about.com articles and that article is reasonably helpful so I left that one in.Wikidemo09:37, 23 June 2007 (UTC)[reply]
The 3rd point seems wrong as the price of an asset should be discounted by a rate aproriate to the riskiness of the asset and not at the risk free rate always.— Precedingunsigned comment added byStudent2k4 (talk •contribs)06:30, 29 September 2011 (UTC)[reply]
OwenX deleted the section that I added to this article without any comment as to why in this talk page.
Would not manipuating the rules on a website, (such as Google), in order to take advantage of a lower priced add space, in order to make a larger profit be an example of arbitrage?
Apparently Forbes, a respected reporter of business news, seemed to think so in this article.
http://www.forbes.com/2006/12/06/internet-advertising-search-tech_cx_ag_1207google.html
If someone else can write a better synopsis of this, and add it to the article, please do.. OwenX ??
It seemsOil-storage_trade andcontango should be prominently mentioned in this article, as they are some of the most important everyday examples. Any reason why they're left out?— Precedingunsigned comment added by70.124.70.178 (talk)04:36, 18 March 2013 (UTC)[reply]
The article introduction says:"in simple terms, it is the possibility of a risk-free profit at zero cost."
How is it zero-cost? You need money to buy the product at the low price, only then you can sell it at the higher price.I found this confusing. --Jorge (talk)18:28, 16 October 2013 (UTC)[reply]
I agree that this is poorly worded. "risk-free profit with zero net value-at-risk" might be a better choice, but I'm not really sure.Simishag (talk)22:37, 16 October 2013 (UTC)[reply]
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Could someone who knows please look at the sentence "The ideas of using multiple discount rates obtained from zero-coupon bonds and discount a similar bonds cash flow to find its price is derived from the yield curve" and perhaps say whatever it means a little more clearly?Thanks --Frans Fowler (talk)23:17, 17 January 2017 (UTC)[reply]
I am moving the following material here until it can be properly supported withreliable,secondary citations, perWP:V,WP:NOR,WP:IRS,WP:PSTS, et al.Nightscream (talk)21:08, 5 December 2017 (UTC)[reply]
Examples
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- Supposing anexchange rate (after taking out the fees for making the exchange) in London is £5 = ¥1000 and the exchange rate in Tokyo is ¥1000 = £6, converting ¥2000 to £12 in Tokyo and converting that £12 into ¥2400 in London, would result in a profit of ¥400. In reality, this arbitrage is so simple that it almost never occurs. But more complicated foreign exchange arbitrages, such as the spot-forward arbitrage (seeinterest rate parity) are much more common.
- One example of arbitrage involves theNew York Stock Exchange and the Security Futures ExchangeOneChicago (OCX). When the price of a stock on the NYSE and its correspondingfutures contract on OCX are out of sync, one can buy the less expensive one and sell it on the more expensive market. Because the differences between the prices are likely to be small (and not to last very long), this can be done profitably only with computers examining a large number of prices and automatically exercising a trade when the prices are far enough out of balance. The activity of other arbitrageurs can make this risky. Those with the fastest computers (i.e. lowest latency to respond to the market) and the most expertise take advantage of series of small differences that would not be profitable if taken individually.
- Economists use the term "global labor arbitrage" to refer to the tendency of manufacturing jobs to flow towards whichever country has the lowest wages per unit output at present and has reached the minimum requisite level of political and economic development to supportindustrialization. At present, many such jobs appear to be flowing towardsChina, though some that require command of English are going toIndia and thePhilippines. In popular terms, this is referred to asoffshoring. (Note that "offshoring" is not synonymous with "outsourcing", which means "to subcontract from an outside supplier or source", such as when a business outsources its payroll or cleaning. Unlike offshoring, outsourcing always involves subcontracting jobs to a different company, and that company can be in the same country, even the same building, as the outsourcing company.)
- Sports arbitrage – numerousinternetbookmakers offer odds on the outcome of the same event. Any given bookmaker will weight their odds so that no onecustomer can cover all outcomes at a profit against their books. However, in order to remain competitive they must keep margins usually quite low. Different bookmakers may offer different odds on the same outcome of a given event; by taking the best odds offered by each bookmaker, a customer can under some circumstances cover all possible outcomes of the event and lock a small risk-free profit, known as aDutch book. This profit will typically be between 1% and 5% but can be much higher. One problem with sports arbitrage is that bookmakers sometimes make mistakes and this can lead to an invocation of the 'palpable error' rule, which most bookmakers invoke when they have made a mistake by offering or posting incorrect odds. As bookmakers become more proficient, the odds of making an 'arb' usually last for less than an hour and typically only a few minutes. Furthermore, huge bets on one side of the market also alert the bookies to correct the market.
- Exchange-traded fund arbitrage – Exchange Traded Funds allow authorized participants to exchange back and forth between shares in underlying securities held by the fund and shares in the fund itself, rather than allowing the buying and selling of shares in the ETF directly with the fund sponsor. ETF trade in the open market, with prices set by market demand. An ETF may trade at a premium or discount to the value of the underlying assets. When a significant enough premium appears, an arbitrageur will buy the underlying securities, convert them to shares in the ETF, and sell them in the open market. When a discount appears, an arbitrageur will do the reverse. In this way, the arbitrageur makes a low-risk profit, while keeping ETF prices in line with their underlying value.
- Some types ofhedge funds make use of a modified form of arbitrage to profit. Rather than exploiting price differences between identical assets, they will purchase and sellsecurities,assets andderivatives with similar characteristics, andhedge any significant differences between the two assets. Any difference between the hedged positions represents any remaining risk (such as basis risk) plus profit; the belief is that there remains some difference which, even after hedging most risk, represents pure profit. For example, a fund may see that there is a substantial difference between U.S. dollar debt and local currency debt of another country, and enter into a series of matching trades (including currency swaps) to arbitrage the difference, while simultaneously entering intocredit default swaps to protect againstcountry risk and other types of specific risk.[citation needed]
- A fairly trivial example is the melting of coins when their scrap metal value exceeds their facial value. This practice is usually forbidden.
There have been a number of edits/reverts regarding crypto arbitrage lately. Some consensus on the appropriate discussion should be provided. It is not clear to me if there is anything specific to arbitrage for crypto compared to other spacial arbitrages. If there is something distinct, then this should be provided and include citations. If there is nothing distinct, I propose this subsection be deleted.Zfeinst (talk)08:09, 14 June 2024 (UTC)[reply]
