The Entrepreneur Fund News and Resources for Entrepreneurs

Additional Online Revenue Streams for Business: Is It Possible?

Tech stocks face second risk besides regulation, Goldman Sachs says

Scooter startup Bird claims San Francisco wants to shut it down

Fintech Ecosystem Financial Technology Research Business Opportunities

Trump trade war, tariffs study on economic impact, lost jobs

Millennials report using extra income from tax cuts to save, invest

THE MOBILE PAYMENTS REPORT: Key strategies that wallet providers can implement to break from disappointing growth

Amazon HQ2: Boston mayor speaks about incentives

3 things going in Snaps favor that investors have yet to appreciate, says Barclays

Amy HarveyAugust 23, 2019InvestorsLeave a comment5 Views

Traders are always looking for opportunities to make money. Being able to make a profit depends on a few different factors including the circumstances and conditions of the market, as well as good timing. These factors, along with a tradersrisktolerance and goals generally help shape his or her trading strategy.

Developing a strategy can help a trader ensure he or she gets regular results while avoiding behavioral finance biases. All of this is just as true for anyone trading in theforeign exchangemarket. One of the strategies traders use in this market is called arbitrage. This article outlines the basics of this strategy and how its used in the investment world.

Arbitrage happens when a security is purchased in one market and simultaneously sold in another at a higher price.

This results in a profit from the temporary price difference.

Arbitrage is considered a risk-free profit for the investor or trader.

A trader tries to exploit arbitrage opportunities like buying a stock on a foreign exchange where the price hasnt yet adjusted for the fluctuating exchange rate.

Arbitrage is basically buying a security in one market and simultaneously selling it in another market at a higher price, thereby profiting from the temporary difference in prices. This is considered a risk-free profit for the investor/trader.

In the context of the stock market, traders often try to exploit arbitrage opportunities. For example, a trader may buy a stock on a foreign exchange where the price has not yet adjusted for the constantly fluctuating exchange rate. The price of the stock on the foreign exchange is thereforeundervaluedcompared to the price on the local exchange and the trader can make a profit from this difference.

Here is an example of an arbitrage opportunity. TD Bank (TD) trades on both theToronto Stock Exchange(TSX) and theNew York Stock Exchange(NYSE). Lets say TD is trading for $63.50 CAD on the TSX and $47.00 USD on the NYSE. The exchange rate of USD/CAD is $1.35, which means that 1 U.S. dollar = $1.37 CAD. Given this exchange rate, $47 USD = $64.39 CAD.

Clearly, theres an opportunity for arbitrage here as, given theexchange rate, TD is priced differently in both markets. A trader can purchase TD shares on the TSX for $63.50 CAD and sell the same security on the NYSE for $47.00 USDthe equivalent of $64.39 CADnetting them $0.89 CAD per share ($64.39 $63.50) for the transaction.

Even when markets have a discrepancy in pricing between two equal goods, there is not always an arbitrage opportunity.

If all markets wereperfectly efficient, there would never be any arbitrage opportunitiesbut markets seldom remain perfect. Transaction costs can turn a possible arbitrage situation into one that has no benefit to the investor. For instance, consider the scenario with TD Bank shares above. If the trading fees per share or in total costs more than the total arbitrage return, the arbitrage opportunity would be erased.

Semiconductors are all over the place. As digital gadgets proliferate, the businesses that make semiconductors

Your email address will not be published.Required fields are marked*

Why its hard to for retirees to get by on Social Security benefits

Affordable ski goggles for your next trip to the slopes

Facebook: Star Wars Mark Hamill deletes account over political ads

Indexed Universal Life Insurance: Pros and Cons

McDonalds new Dollar Menu gets slammed as a failure

Cura Cannabis Solutions wants to be Americas first marijuana unicorn

Trump tax reform may boost private jet sales, details

North Korea reportedly laundered coal through Russia in an apparent breach of sanctions

satyadeva: Thank you so much for share your knowledge…

Smart Reader: Great article guys! We are constantly researching the benefits of teaching to re…

Andrew: HIDING funds offshore is a crime, but merely STORING them there is not. It is ex…

Jack Morris: Doing things smartly has always been my businesss path to success. Thanks for s…

Deranged Gifts: Some great choices. We also offer some unique products. Come check us out someti…

Why its hard to for retirees to get by on Social Security benefits

Affordable ski goggles for your next trip to the slopes

Facebook: Star Wars Mark Hamill deletes account over political ads

Indexed Universal Life Insurance: Pros and Cons