What more can you ask for if your investments give you riskless profits? It becomes a very painful waiting for your invested stocks to give you returns in a short period of time. In a certain period of a market when the only one-sided moment is expected to increase/decrease as a smart investor with a good amount of liquidity should opt for more options. To take out the best out waiting is not the only solution, striking the right opportunity and making the best out of it is possible through Arbitrage schemes. Ways to get into Arbitrage trading
Striking the right cord
Arbitrage exists from time to time opportunities in the market. Assume that an X stock price is Rs. 100 in NSE and if its stock price is Rs. 107 in BSE then you buy in NSE and sell it in BSE. Rarely does there is a vast difference in those to markets. The difference is the profit gained or the breakeven. One who can study the market right and swim at the right time can derive the desired profits from these simultaneously changing markets.
Efficient returns from inefficient markets
The strategy of making profits through an inefficient market is Arbitrage. Big players with huge liquidity would not wait for the markets to move on its pace, it would rather eventually get into various other strategies to make the most out of its money. The investor will realize his profit on such trades when the prices move closer towards his forecasted price than from the market price. Arbitrageurs specialize in taking the advantage of the difference between two markets. With the high frequency in trading simultaneous markets, it has become very limited in trading.
On the flip side of Arbitrage trading, it can even cause an adverse effect on Long-Term Capital management. In order to play into a different market, it could pressurize the buying and selling orders and could interfere in policies exchange houses. But with increasing security policies and automated corrections, it minimizes such interventions and has increased the frequency of trading. It is a method to derive liquidity and but into the markets. With the ever-changing policies in taxation, the ministry may change arbitrage funds into taxed funds. So it may be taxed like any other debt funds which sold early will be treated as short-term capital gains according to the income tax slab.