yeah if you re frontin your money you would; but its a zero sum game so for one to make money another has to lose it; real tricky and the deeper your pockets the more chances you have of making money
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Nick Against the World (104 Viewers)
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I have a question. How can arbitrageurs in a futures market be called arbitrageurs when they do indeed put up capital and incur risk? Or is it assumed they cancel the risk by simultaneously entering into two different, but similar, markets to somehow have a gauranteed profit while offsetting their risk?
arbitrage means something different here, for example if the dollar is trading to the euro at a certain rate, and the yen is trading to the euro vis a vis the dollar at alower rate then you can make money at no risk the bigger your volume the bigger the profit, but by this action you fix the disparity so that the yen trades to the euro vis a vis the dollar at an equal rate
hey andy seeing as my explanation lacked lucidity i found this for you it beautifully explains it:
Price discrepancies, although at odds with mainstream finance, are persistent phenomena in financial markets. These apparent mispricings lead to the presence of “arbitrageurs,” who aim to exploit the resulting profit opportunities, but whose role remains controversial. This article investigates the impact of the presence of arbitrageurs in Indian financial markets. An arbitrageur, indulging in costless, riskless arbitrage is shown to alleviate the effects of position limits and improve the transfer of risk amongst investors. When the arbitrageur behaves non-competitively, in that he takes into account the price impact of his trades, he optimally limits the size of his positions due to his decreasing marginal profits.
Price discrepancies, although at odds with mainstream finance, are persistent phenomena in financial markets. These apparent mispricings lead to the presence of “arbitrageurs,” who aim to exploit the resulting profit opportunities, but whose role remains controversial. This article investigates the impact of the presence of arbitrageurs in Indian financial markets. An arbitrageur, indulging in costless, riskless arbitrage is shown to alleviate the effects of position limits and improve the transfer of risk amongst investors. When the arbitrageur behaves non-competitively, in that he takes into account the price impact of his trades, he optimally limits the size of his positions due to his decreasing marginal profits.
That's much more clear now. But I did have an understanding that you could fix the inequality between positions as that is a common practice of many firms to hedge against risk by entering into two different forward/future contracts to lock in some known profit. The whole concept of arbitrage has been a bit dodgy at first but it's making complete sense now.
Right now in this derivatives course we're still talking about forward contracts, but hopefully soon we'll get into the core of futures and commodities, as well as risk management and hedging.
I'm actually enjoying this class more than my meteorology classes. Perhaps I should have chosen Finance.
You're practically the only person (besides professors) I know who works with this field, so thanks for your help bro. This shit makes the world go round.
Right now in this derivatives course we're still talking about forward contracts, but hopefully soon we'll get into the core of futures and commodities, as well as risk management and hedging.
I'm actually enjoying this class more than my meteorology classes. Perhaps I should have chosen Finance.
You're practically the only person (besides professors) I know who works with this field, so thanks for your help bro. This shit makes the world go round.
