Arbitrage

[Cameron52P]

There is much discussion around the arbitrage that would occur if brokers offered prices wildly out of line with each other, but I have to confess, I dont get how it would work in practise.

[Carpethaa]

I thought Id try and answer this and then thought better of it as I'll only muck it up! But this gives you the gist of how it works: Investopedia Arbitrage Video (http://www.investopedia.com/video/play/arbitrage/)

[Cassey]

How the hell is that second example in the video considered to be an arbitrage trade? Looks like you're long a takeover to me and if the takeover hit's the sh1tter you're gonna be out of pocket... There's no hedge in place to ensure that you don't lose on the outright and so you have a theoretical unlimited risk. Id have that is in start contrast to the concept of arbitrage.

[CharlesTag]

Barjon's method is based on the mean reverting historic correlation relationship between FTSE and DOW isn't it? While I agree that there being an inherent risk accepting element is obvious, I fail to see how it draws any parallels whatsoever with the method explained in the video. It's not information based for a start as he looks only at the statistical likelihood of normalisation of the 'relationship' based on nothing more than the 'gap' when that itself is inferred by a number of variables i.e. FX, flows, index composition, etc.

[admin]

Thanks timsk, but I'm none the the wiser. Lovely graphics, but no content that addresses my confusion.