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Arbitrage
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Created: by kerrmac Attachments:0

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Arbitrage

  #1 (permalink)
Trading Apprentice
glasgow+scotland
 
Futures Experience: Intermediate
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Posts: 21 since Jul 2012
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Arbitrage

Good day to you all. I am looking for a bit of help.

I am an whizz kid sports arbitrage trader and have been doing it for about 2 years, I have become very good at it through lots of hard work and determination and through making lots of mistakes.

I basically make money out of finding pricing anomalies in the sports betting markets. I.e when the bookmakers makes a mistake, this happens all the time and its how I earn my living. It also helps that I absolutely love it and am exhaustive in my work.

I was wondering if someone might be able to give me an introduction to arbitrage in the financial markets, I have a good knowledge of trading but I have not any idea how an arbitrage would occur in the financial market.

I like to learn and teach so any questions on what I do will be answered to the fullest.x

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  #2 (permalink)
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  #3 (permalink)
Membership Revoked
Oslo, Norway
 
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Lornz's Avatar
 
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As a former sports bettor, I will make the claim that the financial markets are much more efficient. "Pure" arbitrage is not even worth contemplating, focus on statistical arbitrage instead. I've know of some traders doing risk arbitrage, but I have no personal experience with that. If I were starting out, I would pursue options and volatility arbitrage. It is my greatest regret that I did not do that immediately. Options trading is the form of trading most similar to sports betting, at least for my type of operation.

This book gives a decent high-level overview:
Amazon.com: Understanding Arbitrage: An Intuitive Approach to Financial Analysis (9780137010028): Randall Billingsley: Books

Hopefully, you'll hear from more knowledgeable traders than myself...

Good luck!

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  #4 (permalink)
Elite Member
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Pure arbitrage is completely out of the reach of the retail trader. It comes in many forms...ETF price getting too far away from NAV, pricing differences between stocks listed on different exchanges, put/call parity violations, etc. Unless you're an institutional investor you don't stand a chance here because the competition happens on latency, and a LOT of money is spent on infrastructure to minimize latency.

Statistical arbitrage (some call it "pairs trading") isn't really arbitrage, it's more of a bet that a relationship between two (or more) assets will continue to follow your model in the future as it has in the past. I feel that here there are more opportunities for the retail trader, both intraday and swing, and particularly in more volatile times.

There are more types of arbitrage that aren't pure: liquidity arbitrage (a lot of what LTCM did was in this area), convertible bond arbitrage, merger arbitrage, etc.

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  #5 (permalink)
Trading Apprentice
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Posts: 21 since Jul 2012
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That was a most helpful reply and confirmed something I heard from a retired trader who said that it was not possible for an individual to make arbitrages unless they worked for a big company. You explained it better. Thank you.

What your experience in sports betting? Is it still legal in Greece? I know many countries have outlawed it on the internet.

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  #6 (permalink)
Trading Apprentice
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I think I read both your posts and did some merger arbitrage on them. Sorry about that but I'd be interested in both your answers Greece and Norway.

Thanks

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  #7 (permalink)
Elite Member
Thessaloniki, Greece
 
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kerrmac View Post
That was a most helpful reply and confirmed something I heard from a retired trader who said that it was not possible for an individual to make arbitrages unless they worked for a big company. You explained it better. Thank you.

What your experience in sports betting? Is it still legal in Greece? I know many countries have outlawed it on the internet.

I'm not sure, never did any sports betting. I actually think it's illegal because the government is supposed to have a monopoly on betting, but there's really no way for them to enforce it.

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  #8 (permalink)
Trading Apprentice
glasgow+scotland
 
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Posts: 21 since Jul 2012
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Whats you angle on trading sir? Have much fun at the minute in the markets?

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  #9 (permalink)
Membership Revoked
Oslo, Norway
 
Futures Experience: Advanced
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Posts: 1,198 since Apr 2010
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The state has a monopoly on sports betting here, but it was not strictly enforced back then. Now they have an agreement with the credit card companies to block all transactions to gaming sites, however.

I was most active about a decade ago, when there actually were quite a few arbitrage opportunities within reach. Most of my work was more in the realm of statistical modeling, though. It was very crude, but it produced decent results. I played overlapping systems in a sort of spreading fashion. As it was not yet possible to make markets on games, one was forced to be buy-side only. I saw that the financial markets would offer both more flexibility and, not to mention, liquidity, so I made the switch. I actually think trading is more fun, simply because it provides a deeper understanding of how the world works.

I also did some stat arb on horse races. It's amazing how quickly people abandon their ability think rationally once they set foot on the track. However, considering that the average volume of the "winner" parimutuel was around $2000, it didn't make much sense to try to build a career on that. That's the drawback of living in a tiny country, I guess.

Dig up a copy of Bacon's "Secrets of Professional Turf Betting", it applies to trading as well. Skiena's "Calculated Bets" is also quite interesting.

Alright, I'm out of here.... Good luck to you!

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  #10 (permalink)
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With respect to statistical arbitrage...

There is a some introductory words in:
Ernest P. Chan, Quantitative Trading: How to Build Your Own Algorithmic Trading Business, Wiley 2008
... but do not buy it only for this. I am just mentioning in case you already have this book.

An interesting reference is:
Ganapathy Vidyamurthy, Pairs Trading, Quantitative Methods and Analysis, Wiley 2004
Two thirds of the book are dedicated to statistical arbitrage based on co-integration.

Nicolas

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