There are many strategies which can be employed for online
trading but it always remains a contagious issue to minimize the risks involved
and generally, the higher the risks, greater are the rewards. It is here that
the concept of arbitrage comes into the picture. Arbitrage represents a unique
approach in which a specific asset being traded on more than one market is
bought at one market and sold at another for a higher price at the same time.
This method works because of a certain discrepancy which exists in the prices
for any particular stock between two exchanges due to pricing inefficiencies. An
arbitrager in essence attempts to identify these arbitraging opportunities and
utilizes them to his advantage.
However, this discrepancy is too small to make any real
gains so the trader buys in bulk and sells off in another market immediately to
profit from this small difference in price. This is known as pure arbitrage and
presents a strategy for online trading with minimal amount of risk involved.
This strategy can be successfully employed in equities, commodities or forex
market without much issue. It is especially useful in forex market where a
trader with quick reflexes can identify arbitrage opportunities by tracking
real-time prices of various currency pairs and act swiftly to make some good
gains.
It is essential to act upon these opportunities without
losing time because these arbitrage trades tend to correct the price
inefficiencies which created them in the first place. However, market makers
can steal the show from retail traders when it comes to arbitraging. This is so
because successful arbitrage requires a good amount of capital to convert the
small price difference into desirable gains which makes it a little difficult
for the average retail trader.
The trader needs to have a great amount of skill and
knowledge about online trading along with an ability to keep updated constantly
with any factors in and outside of market which can have an impact on the
movement in stock markets. Last but not the least; it requires access to
efficient trading software with an eye for good trades. Apart from pure
arbitrage, there is another type of arbitrage which is very attractive but
risky as well. Aptly, this is known as risk arbitrage. This type of arbitrage usually
involves trading with a view to take advantage of any prospective or underway
merger or acquisition which can bring a sudden change in the price of stocks.
If you wish to try your hand at arbitraging, you can open a
free demat account with Ashlar Online and begin online trading through us. With
years of expertise and exposure in the field, we will be able to guide you
better and help you manage your risks in an efficient manner to become a
successful trader.
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