Does anyone know of any trading firms / arcades / traders that trade the fx futures against the cash spot market?
Any insight into this would be greatly appreciated
Thanks
Any insight into this would be greatly appreciated
Thanks
FX futures against the cash
- Thread starter torchiegore
- Start date
These are all funding games, if you wanna play them properly.
I was coming from more of an arbitrage angle, though thanks for the reply
"Arbitrage" is such an abused word... You can't "arbitrage" these things, unless you do your own funding in the mkt.
This discrepancy isn't an "arb", either...
Arbitrage, to me, implies availability of costless risk-free profit. FX fwd (or futures) vs FX spot is only risk-free (to a practical extent), if you're able to fund your spot positions better than what's implied by the fwd mkt. There are some interesting recent examples of how this "arb" can go horribly wrong.
Arbitrage is taking advantage of mispricing of the same security that trades in two different markets to profit risk free. It involves buying the security in one market and immediately selling it in the other for a profit. These opportunities always exist because this is how price is discovered by the markets. But those that exploit these opportunities are those who make the books for markets and they never make it to the retail sector.
The difference between cash and futures is called basis trading and it involves risk. It is not arbitrage.
The difference between cash and futures is called basis trading and it involves risk. It is not arbitrage.
basis trading
An arbitrage operation in which an investor takes a long position in one type of security and a short position in a similar security in an attempt to profit from a change in the basis between the two securities. For example, an investor might purchase a call with an April expiration and simultaneously sell short a call with a different expiration or strike price on the same stock. The investor expects that the values of the two positions will change over time such that a profit will ensue. Basis trading is undertaken when the investor feels one security is priced too high or too low relative to the price of another security. Because of this, the profit on one side of the trade should more than cancel out the loss on the opposite side of the trade. Basis trading may involve an index or group of securities as well as individual securities. Also called relationship trading.
An arbitrage operation in which an investor takes a long position in one type of security and a short position in a similar security in an attempt to profit from a change in the basis between the two securities. For example, an investor might purchase a call with an April expiration and simultaneously sell short a call with a different expiration or strike price on the same stock. The investor expects that the values of the two positions will change over time such that a profit will ensue. Basis trading is undertaken when the investor feels one security is priced too high or too low relative to the price of another security. Because of this, the profit on one side of the trade should more than cancel out the loss on the opposite side of the trade. Basis trading may involve an index or group of securities as well as individual securities. Also called relationship trading.