Hi All,
I'm new to trading and won't be starting my first trade for probably another 6-9 months or so but am trying to grasp a few things. I was reading about all of the different types of traders on investopedia and came across "Detrimental Traders" and they were speaking of Arbitraguers. They said this about them:
I have looked it up and the definition was: "A financial instrument that is created artificially by simulating another instrument with the combined features of a collection of other assets. "
What does that MEAN?
Thanks in advance!
I'm new to trading and won't be starting my first trade for probably another 6-9 months or so but am trying to grasp a few things. I was reading about all of the different types of traders on investopedia and came across "Detrimental Traders" and they were speaking of Arbitraguers. They said this about them:
- Liquidity risk - Arbitrage trades are necessarily synthetic, leveraged trades, as they involve a short position. If the assets used are not identical (so a price divergence makes the trade temporarily lose money), or the margin treatment is not identical, and the trader is accordingly required to post margin (faces a margin call), the trader may run out of capital (if they run out of cash and cannot borrow more) and be forced to sell these assets at a loss even though the trades may be expected to ultimately make money. In effect, arbitrage traders synthesize a put option on their ability to finance themselves.
I have looked it up and the definition was: "A financial instrument that is created artificially by simulating another instrument with the combined features of a collection of other assets. "
What does that MEAN?
Thanks in advance!
