Arbitrage for the littly guy
- Thread starter mauzj
- Start date
to have a lot of capital in arb trading, mergers or otherwise. Thats the main reason why I am with a prop firm. Can have a core position in many spreads and then actively trade around that position. If you don't have as much capital, you can find some pairs to trade that may be more volatile but require less shares or capital to trade, so if you do it right you can find a firm that can help you with your capital requirement, should your desire be to "stay small."
Maybe you could also consider communicating a refinement of your strategy, including foremost your risk parameters, with the knowledgeable decision makers of various firms, starting a dialogue. Be patient, you will find that someone will listen to a sound strategy with a strong risk management component. You can get the buying power you need in my opinion. Also be patient in your communication as you deal with the more influential people who can help you.
Maybe you could also consider communicating a refinement of your strategy, including foremost your risk parameters, with the knowledgeable decision makers of various firms, starting a dialogue. Be patient, you will find that someone will listen to a sound strategy with a strong risk management component. You can get the buying power you need in my opinion. Also be patient in your communication as you deal with the more influential people who can help you.
There are arbs for the little guy (still need some $$$$ power) , but lately they suck and the ops are few and far between. Seems arbs work best when theres lots of public money sloshing around and the mm's don't give a rats a** about your arb, 'cause they're making so much off the suckers.
1. arbitrage at its purest definition is risk free. since we live in a highly computerize world with thousands of people looking for exactly that, risk free return, the markets have become highly efficient. this game does not exist for single trader with below average capital and below average equipment. and it never existed
2. arbitrage as commonly used today refers to spread trading at any kind. identify something undervalued and something overvalued an trade on this imbalance. this can happen in equities, classic is the merger arbitrage trade of buying the target and selling the acquirer, in fixed income, like trading mortgage backed securities against each other or against government bonds (or any hybrid), in options, like trading different expiration dates against each other.
within these transactions, there is always risk involved. the further one is ahead of the crowd, the less risk he is forced to accept.
the question is whether there is arbitrage of the second kind for the below average guy in terms of capital and equipment. i personally doubt it is. maybe someone is extremely lucky and finds something by chance - seems very unlikely to me. i think it is possible for a single person to move ahead of the crowd, but it will require sincere effort and push this person probably above average in terms of equipment, skills and quite quickly in terms of capital.
what is definitely the case for arbitrage, that there is no valid information available on an internet board. risk return ratios in these games are so attractive, that no one would even slightly risk it by publishing it. have mentioned mergers and fixed income - these games require so much risk and played by so many people that they hardly justify the term arbitrage any more. those people who are doing these games successfully are very well equipped and in terms of skills and capital.
conclusion: dig dig dig. in arbitrage the secrecy is even more severe than in other trading areas, like trend following.
peace
2. arbitrage as commonly used today refers to spread trading at any kind. identify something undervalued and something overvalued an trade on this imbalance. this can happen in equities, classic is the merger arbitrage trade of buying the target and selling the acquirer, in fixed income, like trading mortgage backed securities against each other or against government bonds (or any hybrid), in options, like trading different expiration dates against each other.
within these transactions, there is always risk involved. the further one is ahead of the crowd, the less risk he is forced to accept.
the question is whether there is arbitrage of the second kind for the below average guy in terms of capital and equipment. i personally doubt it is. maybe someone is extremely lucky and finds something by chance - seems very unlikely to me. i think it is possible for a single person to move ahead of the crowd, but it will require sincere effort and push this person probably above average in terms of equipment, skills and quite quickly in terms of capital.
what is definitely the case for arbitrage, that there is no valid information available on an internet board. risk return ratios in these games are so attractive, that no one would even slightly risk it by publishing it. have mentioned mergers and fixed income - these games require so much risk and played by so many people that they hardly justify the term arbitrage any more. those people who are doing these games successfully are very well equipped and in terms of skills and capital.
conclusion: dig dig dig. in arbitrage the secrecy is even more severe than in other trading areas, like trend following.
peace