Arbitrage India trading involves buying and selling stocks within the shortest span of time in time. Such Arbitrage opportunities in NSE DMA are available when the price of a security is different from the same or similar security on another financial market.
While getting into an arbitrage trade, it is important to know that the quantity of underlying asset purchased and sold should remain the same. Traders capture only the price difference as the net pay-off from the trade. The trader also calculates that payoff is sufficient to cover the costs involved in executing the trades (i.e. transaction costs). Otherwise, it won’t make sense to initiate the trade.
For instance, there is usually price difference between the S & P futures and stocks as the stocks trade on the NASDAQ and NYSE while the futures trade on the CME.
Suppose there is a disparity between the S&P 500 stocks and S&P 500 futures. If the S&P500 stocks are pricing higher than the futures the trader will sell the stocks and buy the futures at the same time to make risk free profits. It is essential to keep in mind that such opportunities usually only last a few seconds since most of the arbitrage India trading has already been taken over by algorithm-based trading in matured markets. It is easy to spot the algorithms and capture the arbitrage opportunities available in the market. Arbitrage India trading allows traders to enjoy risk-free returns and there is no transaction or transportation cost incurred in it. Although, arbitrage strategies seem easy to identify but these are very complicated in the real world.
Many institutions possess complex and expensive trading software so as to keep a keen eye on such opportunities and grab the opportunities as soon as they arise in the market.
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