Arbitrage Persuasive Essay
By exploiting price differences, people can make hundreds upon thousands of dollars. Arbitrage is the process of taking advantage of price imbalances between two or more markets. Arbitrageurs are the people whose role it is to strike a combination of similar deals across markets to capitalize upon any perceived imbalance. Often, this can offer a guaranteed profit, with no risk which is a very good thing. However, frequently participants fail to account for all of the risks which itself explains why arbitrage is not always risk free and can be such a dangerous thing.
What can make Arbitrage such a risky trade? Is the dream of arbitrage too good to be true? First, we need to distinguish between arbitrage that is free money and arbitrage that is a dangerous gamble. Before we can find this out, we must go into detail about what arbitrage actually is, beyond the basic definition of mispricing between markets.
Arbitrage “in the …show more content…
Although not likely, it is conceivable that you could buy a stock in one market, and instantaneously sell it at another market for a higher price. To continue to make this a riskless transaction, not only must you do this at the exact same time, but one must eliminate all if any exchange rates by converting the foreign currency into the domestic currency instantly. This is an example of a Dual Listed Stock, dual meaning two. For example, at one point in time, a particular stock could be listed at $60.02 at one exchange but offered at $60.00 at another. In theory, one could then purchase the cheaper contract at the price and sell it at the other. Due to this, a risk free profit could be made of two cents ($0.02 USD). With this, there are also Depository Receipts, which are quite different and possibly riskier than Dual Listed Stocks. Not only this, but they can become more costly and time consuming as
What can make Arbitrage such a risky trade? Is the dream of arbitrage too good to be true? First, we need to distinguish between arbitrage that is free money and arbitrage that is a dangerous gamble. Before we can find this out, we must go into detail about what arbitrage actually is, beyond the basic definition of mispricing between markets.
Arbitrage “in the …show more content…
Although not likely, it is conceivable that you could buy a stock in one market, and instantaneously sell it at another market for a higher price. To continue to make this a riskless transaction, not only must you do this at the exact same time, but one must eliminate all if any exchange rates by converting the foreign currency into the domestic currency instantly. This is an example of a Dual Listed Stock, dual meaning two. For example, at one point in time, a particular stock could be listed at $60.02 at one exchange but offered at $60.00 at another. In theory, one could then purchase the cheaper contract at the price and sell it at the other. Due to this, a risk free profit could be made of two cents ($0.02 USD). With this, there are also Depository Receipts, which are quite different and possibly riskier than Dual Listed Stocks. Not only this, but they can become more costly and time consuming as