Webcast & Podcast

Short selling can be included in arbitrage trades. In this way, financial transactions can be "closed out". This means that a financial transaction is hedged by the exact opposite transaction. In a short sale, the investor does not have to own the security. He only assures the seller that he will own it at a certain point in time.

Effects of the market situation

The high level of transparency on the money markets as well as the high degree of mechanisation of the financial market mean that arbitrage transactions are becoming less and less possible. Today, computer systems identify arbitrage opportunities and process the arbitrage transactions within a very short time. These programmes monitor foreign exchange, stock or commodity markets worldwide. Thus, not only is it difficult to find arbitrage opportunities, but investors have to be very quick if they want to take advantage of these opportunities.

Balancing function for stock exchanges

Arbitrage is said to have an important influence on market transparency in Exness and the balancing function that goes with it. By buying securities in large quantities, arbitrageurs draw attention to interest rate, price or currency differences. They are quickly followed by other buyers. In this way, the price that was originally lower increases and the price at the trading centre where the security was listed higher decreases. This eventually brings about a price equalisation between the trading venues.

What role do exchanges and prices play?

Arbitrage is possible through price differences in securities or foreign exchange on different exchanges and trading venues. Buyers can use arbitrage transactions to balance out the values. The so-called arbitrageurs are of great importance because their actions can lead to a fair price equalisation on the stock exchanges.

What are the arbitrage objects?

Financial products are mainly suitable for arbitrage, which are characterised by their market transparency as well as by the simplicity of the transaction. Possible objects for financial management are securities, foreign exchange, precious metals, liabilities or derivatives.

Who uses arbitrage?

Arbitrage is mainly used by institutional investors such as insurance companies or credit institutions. They have large sums of money at their disposal that can be invested in favourable securities within a short period of time, which are immediately sold again elsewhere. Because of the narrow time window and the comparatively small profit, arbitrage is rarely used by small investors.

How can the arbitrageur profit on securities?

An arbitrageur profits from financial products that he buys at favourable conditions and quickly sells at better conditions on another trading venue. The difference between the purchase and sale price is his profit.

• Can profits also be made with bonds?
• If you buy bonds, you can also make a profit by increasing the price of the bond and selling it.
• Is arbitrage suitable for every trader?
• Arbitrage is usually only recommended for large traders. For smaller investors, the transaction fees may be higher than the actual profit.
• Are profits from arbitrage taxable?