arbitrage: [noun] the nearly simultaneous purchase and sale of securities or foreign exchange in different markets in order to profit from price discrepancies Arbitrage Meaning. Arbitrage is an act of generating income from trading a certain currency, security, or commodity in two different markets. The arbitrageurs reap a margin from the Arbitrage Betting Strategies. There are many different strategies and methods to bet on Arbitrage Bets. This example will take you through two of the main strategies of betting on 14/09/ · Arbitrage: Directed by Nicholas Jarecki. With Richard Gere, Susan Sarandon, Tim Roth, Brit Marling. A troubled hedge fund magnate desperate to complete the sale of Arbitrage is a American crime drama film directed by Nicholas Jarecki and starring Richard Gere, Susan Sarandon, Tim Roth and Brit Marling. Filming began in April in New York ... read more
Also called municipal bond relative value arbitrage , municipal arbitrage , or just muni arb , this hedge fund strategy involves one of two approaches. The term "arbitrage" is also used in the context of the Income Tax Regulations governing the investment of proceeds of municipal bonds; these regulations, aimed at the issuers or beneficiaries of tax-exempt municipal bonds, are different and, instead, attempt to remove the issuer's ability to arbitrage between the low tax-exempt rate and a taxable investment rate.
Generally, managers seek relative value opportunities by being both long and short municipal bonds with a duration-neutral book. The relative value trades may be between different issuers, different bonds issued by the same entity, or capital structure trades referencing the same asset in the case of revenue bonds. Managers aim to capture the inefficiencies arising from the heavy participation of non-economic investors i. There are additional inefficiencies arising from the highly fragmented nature of the municipal bond market which has two million outstanding issues and 50, issuers, in contrast to the Treasury market which has issues and a single issuer.
Second, managers construct leveraged portfolios of AAA- or AA-rated tax-exempt municipal bonds with the duration risk hedged by shorting the appropriate ratio of taxable corporate bonds. These corporate equivalents are typically interest rate swaps referencing Libor or SIFMA.
The steeper slope of the municipal yield curve allows participants to collect more after-tax income from the municipal bond portfolio than is spent on the interest rate swap; the carry is greater than the hedge expense. Positive, tax-free carry from muni arb can reach into the double digits. The bet in this municipal bond arbitrage is that, over a longer period of time, two similar instruments—municipal bonds and interest rate swaps—will correlate with each other; they are both very high quality credits, have the same maturity and are denominated in the same currency.
Credit risk and duration risk are largely eliminated in this strategy. However, basis risk arises from use of an imperfect hedge, which results in significant, but range-bound principal volatility. The end goal is to limit this principal volatility, eliminating its relevance over time as the high, consistent, tax-free cash flow accumulates. Since the inefficiency is related to government tax policy, and hence is structural in nature, it has not been arbitraged away.
A convertible bond is a bond that an investor can return to the issuing company in exchange for a predetermined number of shares in the company. A convertible bond can be thought of as a corporate bond with a stock call option attached to it. Given the complexity of the calculations involved and the convoluted structure that a convertible bond can have, an arbitrageur often relies on sophisticated quantitative models in order to identify bonds that are trading cheap versus their theoretical value.
Convertible arbitrage consists of buying a convertible bond and hedging two of the three factors in order to gain exposure to the third factor at a very attractive price. For instance an arbitrageur would first buy a convertible bond, then sell fixed income securities or interest rate futures to hedge the interest rate exposure and buy some credit protection to hedge the risk of credit deterioration.
Eventually what he or she would be left with is something similar to a call option on the underlying stock, acquired at a very low price. He or she could then make money either selling some of the more expensive options that are openly traded in the market or delta hedging his or her exposure to the underlying shares.
A depositary receipt is a security that is offered as a "tracking stock" on another foreign market. For instance, a Chinese company wishing to raise more money may issue a depository receipt on the New York Stock Exchange , as the amount of capital on the local exchanges is limited. These securities, known as ADRs American depositary receipt or GDRs global depository receipt depending on where they are issued, are typically considered "foreign" and therefore trade at a lower value when first released.
Many ADR's are exchangeable into the original security known as fungibility and actually have the same value. In this case, there is a spread between the perceived value and real value, which can be extracted. Other ADR's that are not exchangeable often have much larger spreads. Since the ADR is trading at a value lower than what it is worth, one can purchase the ADR and expect to make money as its value converges on the original.
However, there is a chance that the original stock will fall in value too, so by shorting it one can hedge that risk.
The stock is also traded on the German electronic exchange, XETRA. Some brokers in Germany do not offer access to the U. Hence if a German retail investor wants to buy Apple stock, he needs to buy it on the XETRA. The cross-border trader would sell the Apple shares on XETRA to the investor and buy the shares in the same second on NASDAQ. Afterwards, the cross-border trader would need to transfer the shares bought on NASDAQ to the German XETRA exchange, where he is obliged to deliver the stock.
In most cases, the quotation on the local exchanges is done electronically by high-frequency traders , taking into consideration the home price of the stock and the exchange rate. This kind of high-frequency trading benefits the public, as it reduces the cost to the German investor and enables them to buy U. A dual-listed company DLC structure involves two companies incorporated in different countries contractually agreeing to operate their businesses as if they were a single enterprise, while retaining their separate legal identity and existing stock exchange listings.
In integrated and efficient financial markets, stock prices of the twin pair should move in lockstep. In practice, DLC share prices exhibit large deviations from theoretical parity. Arbitrage positions in DLCs can be set up by obtaining a long position in the relatively underpriced part of the DLC and a short position in the relatively overpriced part.
Such arbitrage strategies start paying off as soon as the relative prices of the two DLC stocks converge toward theoretical parity. However, since there is no identifiable date at which DLC prices will converge, arbitrage positions sometimes have to be kept open for considerable periods of time. In the meantime, the price gap might widen. In these situations, arbitrageurs may receive margin calls , after which they would most likely be forced to liquidate part of the position at a highly unfavorable moment and suffer a loss.
Arbitrage in DLCs may be profitable, but is also very risky. A good illustration of the risk of DLC arbitrage is the position in Royal Dutch Shell —which had a DLC structure until —by the hedge fund Long-Term Capital Management LTCM, see also the discussion below. Lowenstein  describes that LTCM established an arbitrage position in Royal Dutch Shell in the summer of , when Royal Dutch traded at an 8 to 10 percent premium.
In the autumn of , large defaults on Russian debt created significant losses for the hedge fund and LTCM had to unwind several positions. Lowenstein reports that the premium of Royal Dutch had increased to about 22 percent and LTCM had to close the position and incur a loss.
According to Lowenstein p. See further under Limits to arbitrage. Thus, if a publicly traded company specialises in the acquisition of privately held companies, from a per-share perspective there is a gain with every acquisition that falls within these guidelines. Private to public equities arbitrage is a term that can arguably be applied to investment banking in general.
Private markets to public markets differences may also help explain the overnight windfall gains enjoyed by principals of companies that just did an initial public offering IPO.
Regulatory arbitrage "is an avoidance strategy of regulation that is exercised as a result of a regulatory inconsistency". On the other hand, if the real risk is higher than the regulatory risk then it is profitable to make that loan and hold on to it, provided it is priced appropriately.
Regulatory arbitrage can result in parts of entire businesses being unregulated as a result of the arbitrage. This process can increase the overall riskiness of institutions under a risk insensitive regulatory regime, as described by Alan Greenspan in his October speech on The Role of Capital in Optimal Banking Supervision and Regulation.
The term "Regulatory Arbitrage" was used for the first time in when it was applied by Scott V. Simpson, a partner at law firm Skadden, Arps, to refer to a new defence tactic in hostile mergers and acquisitions where differing takeover regimes in deals involving multi-jurisdictions are exploited to the advantage of a target company under threat. In economics, regulatory arbitrage sometimes, tax arbitrage may refer to situations when a company can choose a nominal place of business with a regulatory, legal or tax regime with lower costs.
This can occur particularly where the business transaction has no obvious physical location. In the case of many financial products, it may be unclear "where" the transaction occurs.
Regulatory arbitrage can include restructuring a bank by outsourcing services such as IT. The outsourcing company takes over the installations, buying out the bank's assets and charges a periodic service fee back to the bank. This frees up cashflow usable for new lending by the bank. The bank will have higher IT costs, but counts on the multiplier effect of money creation and the interest rate spread to make it a profitable exercise.
The bank can often lend and securitize the loan to the IT services company to cover the acquisition cost of the IT installations. This can be at preferential rates, as the sole client using the IT installation is the bank. The IT services company is free to leverage their balance sheet as aggressively as they and their banker agree to. This is the reason behind the trend towards outsourcing in the financial sector. Without this money creation benefit, it is actually more expensive to outsource the IT operations as the outsourcing adds a layer of management and increases overhead.
According to PBS Frontline's four-part documentary, "Money, Power, and Wall Street," regulatory arbitrage, along with asymmetric bank lobbying in Washington and abroad, allowed investment banks in the pre- and post period to continue to skirt laws and engage in the risky proprietary trading of opaque derivatives, swaps, and other credit-based instruments invented to circumvent legal restrictions at the expense of clients, government, and publics.
These programs that have similar characteristics as insurance products to the employee, but have radically different cost structures, resulting in significant expense reductions for employers. Telecom arbitrage companies allow phone users to make international calls for free through certain access numbers. Such services are offered in the United Kingdom; the telecommunication arbitrage companies get paid an interconnect charge by the UK mobile networks and then buy international routes at a lower cost.
The calls are seen as free by the UK contract mobile phone customers since they are using up their allocated monthly minutes rather than paying for additional calls. Such services were previously offered in the United States by companies such as FuturePhone. In these areas, the local telephone carriers are allowed to charge a high "termination fee" to the caller's carrier in order to fund the cost of providing service to the small and sparsely populated areas that they serve.
Statistical arbitrage is an imbalance in expected nominal values. To accomplish arbitrage, the grey market buys items through marketing channels that sell them without the permission of the product trademark owner and sells them in the legitimate market. A Swiss watch sold by an approved dealer for £42, is an excellent example of a grey market product; customers can buy the identical watch for £27, on the Chrono24 website, which is an unlicensed 'grey market.
Long-Term Capital Management LTCM lost 4. dollars in fixed income arbitrage in September LTCM had attempted to make money on the price difference between different bonds.
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Top review. Real good thriller, that is worth seeing. It had been a while since I had either seen Richard Gere, Susan Sarandon or Tim Roth in anything noteworthy but to my own surprise, this was being a solid thriller, with truly some great performances by its cast.
It is absolutely true that without its cast this would had been a very formulaic, standard, average, little thriller. The characters and developments aren't anything surprising but the movie truly gets made interesting by its cast, who also help to make this a convincing and effective thriller. I have never even been a too big fan of Richard Gere but he simply was absolutely great in this!
He mostly carries this entire movie and he does this by playing a sort of despicable character. So it's a real accomplishment by him that he still managed to turn the main character into a still likable enough one, that you never lost interest in. He doesn't make the right choices throughout the movie but that's what keeps his character interesting and helps to let the movie move along, even during its slower moments. It's the sort of thriller in which everything starts to go from bad to worse for its main character, when his lies and actions only get him in more and deeper problems and drags those close to him down, along with him.
But really, it remains a far from perfect thriller and still does plenty of things wrong. It does a poor job at handling some of its characters for instance.
For example, it heavily under uses the Susan Sarandon character, who could had given the movie a whole other dimension and some more depth with her character. After all, she plays the main character's wife, who has certain knowledge about things that don't come into play until very late into the movie, when things are already starting to wrap up. The whole dynamic between her and the Gere character had much more potential really and I thought it was a real shame this didn't get explored any further and better.
Also, I would had loved to have seen more of Susan Sarandon, since she gave away a great performance. That's a bit of a problem with this entire movie; it just doesn't know how to handle and what to do with certain characters. The Tim Roth character also definitely feels a bit underused.
When he shows up you think he is going to play a big and important role for this movie but in fact there are large portions of the movie in which his character plays no role at all. I absolutely loved his scene with Richard Gere and I was hoping for more moments like that, which unfortunately just never came.
I still really enjoyed this thriller and at times was even loving it. It's definitely a better than average genre attempt, despite still having a very standard and familiar type of premise and story in it. So in essence, nothing surprising but it's all still very well made and acted out by its impressive cast, which already is worth the price alone. FAQ 1. What exactly did Miller do for Grant's father that made Grant risk so much to protect him? Details Edit.
Release date September 14, United States. United States Poland. Official site Official site Japan. Порочна пристрасть. New York City, New York, USA. Lionsgate Green Room Films Treehouse Pictures. Box office Edit. Technical specs Edit. Runtime 1 hour 47 minutes. Dolby Digital.
Arbitrage is the simultaneous purchase and sale of the same asset in different markets in order to profit from tiny differences in the asset's listed price. It exploits short-lived variations in the price of identical or similar financial instruments in different markets or in different forms.
Arbitrage exists as a result of market inefficiencies and it both exploits those inefficiencies and resolves them. Arbitrage can be used whenever any stock, commodity, or currency may be purchased in one market at a given price and simultaneously sold in another market at a higher price.
The situation creates an opportunity for a risk-free profit for the trader. Arbitrage provides a mechanism to ensure that prices do not deviate substantially from fair value for long periods of time. With advancements in technology, it has become extremely difficult to profit from pricing errors in the market. Many traders have computerized trading systems set to monitor fluctuations in similar financial instruments. Any inefficient pricing setups are usually acted upon quickly, and the opportunity is eliminated, often in a matter of seconds.
As a straightforward example of arbitrage, consider the following. A trader can buy the stock on the NYSE and immediately sell the same shares on the LSE, earning a profit of 5 cents per share. The trader can continue to exploit this arbitrage until the specialists on the NYSE run out of inventory of Company X's stock, or until the specialists on the NYSE or LSE adjust their prices to wipe out the opportunity. Types of arbitrage include risk, retail, convertible, negative, statistical, and triangular, among others.
A trickier example can be found in currencies markets using triangular arbitrage. In this case, the trader converts one currency into another, converts that second currency to a third bank, and finally converts the third currency back to the original currency.
With these exchange rates there is an arbitrage opportunity:. Arbitrage is trading that exploits the tiny differences in price between identical assets in two or more markets. The arbitrage trader buys the asset in one market and sells it in the other market at the same time in order to pocket the difference between the two prices. There are more complicated variations in this scenario, but all depend on identifying market "inefficiencies.
Arbitrageurs, as arbitrage traders are called, are usually working on behalf of large financial institutions. It usually involves trading a substantial amount of money, and the split-second opportunities it offers can be identified and acted upon only with highly sophisticated software. The standard definition of arbitrage involves buying and selling shares of stock, commodities, or currencies on multiple markets in order to profit from inevitable differences in their prices from minute to minute.
However, the word arbitrage is also sometimes used to describe other trading activities. Merger arbitrage , which involves buying shares in companies prior to an announced or expected merger, is one strategy that is popular among hedge fund investors.
In the course of making a profit, arbitrage traders enhance the efficiency of the financial markets. As they buy and sell, the price differences between identical or similar assets narrow. The lower-priced assets are bid up while the higher-priced assets are sold off. Correction—April 9, A previous version of this article had miscalculated the complicated arbitrage example.
Metals Trading. Trading Strategies. Company News Markets News Cryptocurrency News Personal Finance News Economic News Government News. Your Money. Personal Finance. Your Practice. Popular Courses. Table of Contents Expand. Table of Contents. What Is Arbitrage? Understanding Arbitrage. Arbitrage FAQs. Trading Skills Trading Instruments. Key Takeaways Arbitrage is the simultaneous purchase and sale of an asset in different markets to exploit tiny differences in their prices.
Arbitrage trades are made in stocks, commodities, and currencies. Arbitrage takes advantage of the inevitable inefficiencies in markets. What Are Some Examples of Arbitrage? Why Is Arbitrage Important? Compare Accounts. Advertiser Disclosure ×. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Related Terms. Arbitrageur An arbitrageur is an investor who tries to profit from price inefficiencies in a market by making two simultaneous offsetting trades. Arbitrage Trading Program ATP An arbitrage trading program ATP is a computer program that seeks to profit from financial market arbitrage opportunities. What Is the Positive Carry Strategy?
Positive carry is the practice of investing with borrowed money and profiting from the rate difference. The strategy is common in currency markets. Kimchi Premium Definition Kimchi premium is the gap in cryptocurrency prices, notably bitcoin, in South Korean exchanges compared to foreign exchanges.
Political Arbitrage Activity Political arbitrage activity involves trading securities based on knowledge of potential future political activity. Arbitrage-Free Valuation Definition Arbitrage-free valuation is the theoretical price of an asset based on the underlying real performance of the asset. Partner Links. Related Articles. Metals Trading How Precious Metals Like Gold Can Be Arbitraged. Trading Strategies What Type of Trader Are You?
Arbitrage Betting Strategies. There are many different strategies and methods to bet on Arbitrage Bets. This example will take you through two of the main strategies of betting on Arbitrage is a American crime drama film directed by Nicholas Jarecki and starring Richard Gere, Susan Sarandon, Tim Roth and Brit Marling. Filming began in April in New York Arbitrage Racing Horses. Powered by Diamond Hands Breeding. Build a Breed. Bid for Stud. Bid for Female Breed arbitrage: [noun] the nearly simultaneous purchase and sale of securities or foreign exchange in different markets in order to profit from price discrepancies 14/09/ · Arbitrage: Directed by Nicholas Jarecki. With Richard Gere, Susan Sarandon, Tim Roth, Brit Marling. A troubled hedge fund magnate desperate to complete the sale of Arbitrage Meaning. Arbitrage is an act of generating income from trading a certain currency, security, or commodity in two different markets. The arbitrageurs reap a margin from the ... read more
He or she could then make money either selling some of the more expensive options that are openly traded in the market or delta hedging his or her exposure to the underlying shares. Trending: Stars to Watch. The IT services company is free to leverage their balance sheet as aggressively as they and their banker agree to. It opened in U. The steeper slope of the municipal yield curve allows participants to collect more after-tax income from the municipal bond portfolio than is spent on the interest rate swap; the carry is greater than the hedge expense. Metals Trading How Precious Metals Like Gold Can Be Arbitraged. Arbitrage trades are made in stocks, commodities, and currencies.Arbitrage exists as a result of arbtrage inefficiencies and it arbtrage exploits those inefficiencies and resolves them. Robert Miller : I'm a child of the '50s. These corporate equivalents are typically interest rate swaps referencing Libor or SIFMA. Traders may, for example, find that the price of wheat is lower in agricultural regions than in cities, purchase the good, and transport it to another region to sell at a higher price, arbtrage. Kimchi Premium Definition Kimchi premium is the gap in cryptocurrency prices, notably bitcoin, arbtrage, in South Korean exchanges compared to foreign exchanges.