Four years
ago, many traders did not have a relative understanding of the basic concepts of arbitrage trading. The purpose of this post is to explain the understanding of arbitrage trading.
1. The core of arbitrage trading:
trading pays attention to the way of balance, and trading is divided into two categories: trend trading and arbitrage trading. At the same time, these two major trading modes are mutually supportive and complementary. The core of
trend trading lies in fund management and winning rate profit and loss The core of arbitrage
trading lies in the process of balancing and rebalancing risk exposures between logical relationships between different currency pairs. The
core problem to be solved by arbitrage trading is the balance between risk exposure and risk exposure.
Second, the advantages of arbitrage trading:
the corresponding trading objects and trading strategies of arbitrage trading are different from price unilateral trading. There is no absolute advantage or disadvantage between the two. It
is an investment trading channel independent of unilateral trading. The choice between the two depends to a large extent on the investor's risk preference, investment risk and capital size.
Under normal circumstances, the price difference between contracts involved in arbitrage trading is much smaller than the price change of a single contract, which is a trading method with low risk and stable income.
Therefore, arbitrage trading is mainly an investment choice for traders with large amounts of funds or stable styles.
1. Lower volatility and risk
Compared with a single commodity, arbitrage trading hedges some of the uncertain factors that affect price changes.
Therefore, in general, the fluctuation of price difference is much smaller than that of price, and arbitrageurs The risks faced are smaller, and at the same time, the pressure on investors' fund management is reduced.
2. Limited risk
For those arbitrage with a corresponding spot operation mechanism, it can also achieve limited risk, or even theoretically no risk.
For example, if the price of the near-term contract of the storable commodity is lower than that of the forward contract, and the price difference is higher than the holding cost of the commodity, you can buy the near-term contract and sell the forward contract for arbitrage.
Even when the delivery is approaching, the price difference between the forward contract and the near-term contract expands, and arbitrageurs can choose to buy delivery in the near future and sell delivery in the future. Therefore,
this kind of arbitrage is limited risk arbitrage. This is also commonly referred to as "cash and carry arbitrage".
3. More attractive risk/reward ratio
Compared to a given one-sided position, an arbitrage position can provide a more attractive reward/risk ratio.
Although the income of each arbitrage transaction is not very high, the success rate is high, which is determined by the limited risk, lower risk and lower volatility characteristics of the spread.
In the long run, only a minority make profits from unilateral trading.
Arbitrage is a trading strategy independent of speculation.
Objectively speaking, there is no absolute advantage or disadvantage between investment methods. The choice of investment methods depends to a large extent on investors Risk preference, investment risk and capital size.
Arbitrage trading is a trading method with less risk than unilateral trading and stable income.
Its corresponding trading objects and trading strategies are different from unilateral price trading, so it is an alternative investment trading method that is different from unilateral trading.
In general, the contract price difference involved in arbitrage trading is much smaller than the price change of a single contract, and there are more profit opportunities.
At the same time, arbitrage is walking on "two legs". Therefore, arbitrage trading is often the main investment choice for traders with large amounts of funds or stable styles.
In fact, based on the characteristics of stable arbitrage returns, funds are a good way to conduct arbitrage transactions and obtain arbitrage profits.
3. Classification of arbitrage trading:
In fact, there are many types, such as arbitrage trading, bonus hedging arbitrage, trend rotation arbitrage, deviation from the mean reversion arbitrage, triangular arbitrage and so on.
Carry trade: The basic principle of carry trade is to buy a currency with a higher ideal interest rate and sell another currency with a lower interest rate at the same time, so it is not only possible to make a profit during the transaction, but also to earn income from the difference between the two . Because leverage is used in the foreign exchange market, the amount of currency traded will be relatively large, so sometimes the long-term interest rate difference is also a considerable income. First choose a currency pair, the interest rates between the two currencies are quite different, analyze the long-term trend of the currency based on the fundamentals, and judge whether it is suitable for opening a position.
Bonus hedging arbitrage: This is a very popular game in the past two years. This game even closed down the platform IronFX. And basically a small platform. But it basically doesn't work now. The specific method is to open two accounts with different names and different IPs. When one account conducts transactions, the other account performs reverse copying. Of course, there are bonus hedging arbitrage between different platforms. This will not explain too much.
Trend rotation arbitrage: The theoretical basis of rotation arbitrage comes from the understanding of investment sentiment and currency classification in financial markets. I mentioned this many times in the article. (In the financial market, because market volatility is human nature, the two major weaknesses of human nature are greed and fear, which are also the concentrated expression of market emotions. If there is no emotion, the market will not fluctuate. Just like in the absence of external forces Under this condition, the market will remain still and move in a straight line at a constant speed. The greed for the market is reflected in the herd effect based on the optimistic sentiment of the rising market. When the market risk appetite rises to a certain height, there will be a large number of profit-making chips in the market, and there will be With interest taking, the so-called high risk aversion will appear at this time, so that the market will have a certain amount of empty chips in the primary and secondary rising waves. Then the risks will continue to accumulate, and finally
transformed into market fear. Preference for market risk And aversion, market fluctuations basically revolve around these two, and they rotate each other.)
Deviation from mean regression arbitrage: Hedging portfolio arbitrage based on trading logic and probability statistics, and then wait for a process of mean regression. Like the EURGBP and AUDJPY of the previous time, the trend rotation arbitrage is the basis of the deviation from the mean regression arbitrage.
Triangular arbitrage: The landlord's understanding of triangular arbitrage is divided into small triangle arbitrage and large triangle arbitrage. The logical basis of relatively small triangle arbitrage comes from the judgment of relative currency linkage and deviation point. The big triangle arbitrage is the core strategy used by many excellent EAs in the current market. (The poster will not explain too much, if you are interested, you can chat privately.)
Fourth, how to start and summarize arbitrage trading.
The core of any trading model itself is not how you choose to trade, but whether your core trading logic is established.
Just as all trading logic can be expressed by EA, but all EA cannot fully express a complete trading logic.
So many things have advantages, disadvantages and limitations.
The core of the transaction comes from multiple verifications and real-time follow-up corrections.
Therefore, the origin of the transaction must be studied, so the most essential market sentiment and currency classification start from the simplest deviation hedging arbitrage.
Then take the concept of transaction pattern and logic as the core to carry out demonstration.
This is the root of the real stability of the transaction and the only correct path. (Pay attention to the landlord's wording, the only one.)
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