[Trader's Handbook] Draft articles, "out of pocket" discussions - page 13
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I think arbitration is much broader than what you have in your definition.
Arbitrage
Let's say: buying on one market, moving assets to another market and selling on the market at a knowingly higher price, I think this is arbitrage too, or am I wrong?
How do you see the movement of assets between markets without delivery (eg currency).
Trading in MT5 with leverage, we don't pretend to deliver (1 lot is $100,000, of which only $1,000 is yours), so the position is open until it is closed by the opposite trade. No one has promised to deliver the purchased currency to anyone.
How do you imagine moving assets between markets without delivery (e.g. currencies).
By trading in MT5 with leverage, we are not claiming delivery (1 lot is $100,000, of which only $1,000 is yours), so the position is open until the opposite trade closes. No one has promised to deliver the purchased currency to anyone.
I mean not only trading via MT4/MT5 (if interested I can give an example of a recent situation).
By the way, for those who study carefully and do not chatter )
If I understand Sergeyev correctly, then: Spot - calculations are made on the second working day after the day of the deal.
I.e., after tomorrow, and that would not deliver the day after tomorrow, the position is reopened.(Swap is sometimes also called Rolover or Overnight in Forex - it represents...)
Remove the swap and after tomorrow have to deliver what you sold or buy what you bought.
ZS:
- when is the payday?
- the day after tomorrow
)
I don't mean just trading via MT4/MT5.
By the way, for those who study carefully and don't talk)
If I understand Sergeyev correctly, then: Spot - calculations are made on the second business day after the day of the trade.
I.e., after tomorrow and so that not to deliver the day after tomorrow, the position is reopened.(Swap is sometimes also called Rolover or Overnight in Forex - it represents...)
remove the swap and after tomorrow you have to deliver what you sold or buy what you bought.
ZS:
- when is the payday?
- day after tomorrow
)
I suggest we do a little social research. In the main thread, in the first post, write something like this in red letters:
"It is important to know how many readers, after reading this thread, understand the material it contains. If this branch has helped you understand how the market works (you are able, as any understood material, to retell it to another interviewee), go here and give a "like" to this branch. You don't need to write a review, just a "like".
Sometimes you hear claims of a huge audience. I want to know if it's true or not. And who at least does not scare thoughtfully read a lot of letters on the obligatory by logic subject of market literacy.
If Sergeev's understanding is correct, then: Spot - settlement is made on the second business day after the day of the deal.
i.e. after tomorrow, and that the day after tomorrow is not to be supplied, the position is reopened.(Swap is sometimes also called Rolover or Overnight in Forex - represents...)
remove the swap and after tomorrow you will have to put what you sold or buy what you bought.
-------------
Rollover occurs the next day (tomorrow) and not the day after (the day after that)
I think arbitration is much broader than what you have in your definition.
Arbitrage
Let's say: buying in one market, moving assets to another market and selling in the market at a knowingly higher price, do I consider this to be arbitrage too, or am I wrong?
I will answer you and hrenfx at the same time.
Firstly, there is a strict definition of what is called arbitrage. It has been known for a long time and is generally accepted among professional quant traders.
A (deterministic) arbitrage opportunity on the interval [t1;t2] is such a portfolio strategy that:
1. The capital of the portfolio at the initial moment of time is zero (self-financing condition).
2. The probability that the capital of the portfolio at the final moment is greater than or equal to zero is equal to one.
3. The probability that the capital of the portfolio at a finite point in time will be positive is positive.
Secondly, the definition given by hrenfx is similar to, but not entirely consistent with, the definition of statistical arbitrage. In its generally accepted form it consists of four statements:
1. The capital of the portfolio at the initial point in time is zero (self-financing condition).
2. The limit of expectation of the portfolio capital at infinite time of position holding is positive.
3. The limit of probability that at infinite time of holding the portfolio capital is negative, is zero.
4. The limit of the ratio of the variance of the portfolio capital to the holding time, at infinite portfolio holding time and condition 3 not being met, is zero.
Such a cointegrated portfolio itself is called an arbitrage portfolio (just made that up).
A generally accepted definition of an arbitrage portfolio also exists. And it in no way corresponds to a cointegrated portfolio.
There is also a generally accepted definition of an arbitrage portfolio. And it is by no means the same as a cointegrated portfolio.
you could elaborate on this notion and post it as a full general article in the handbook thread.
This would require citing quite a few supporting definitions and provisions. Personally, I find it easier to cite an authoritative source:
Thomas Bjork "Arbitrage Theory in Continuous Time. Second Edition" - Oxford University Press, 2003.
Thomas Bjork "Arbitrage Theory in Continuous Time" - ICNMO, 2010.
I will answer you and hrenfx at the same time.
Firstly, there is a strict definition of what is called arbitrage. It has been known for a long time and is generally accepted among professional quant-traders.
A (deterministic) arbitrage opportunity on the interval [t1;t2] is such a self-funded portfolio strategy that:
1. The capital of the portfolio at the initial moment of time is zero (self-financing condition).
2. The probability that the capital of the portfolio at the final moment is greater than or equal to zero is equal to one.
3. The probability that the capital of the portfolio at a finite point in time will be positive is positive.
Second, the definition given by hrenfx is similar to, but not entirely consistent with, the definition of statistical arbitrage. In its generally accepted form it consists of four statements:
1. The capital of the portfolio at the initial point in time is zero (self-financing condition).
2. The limit of expectation of the portfolio capital at infinite time of position holding is positive.
3. The limit of probability that at infinite time of holding the portfolio capital is negative, is zero.
4. The limit of the ratio of the variance of the portfolio capital to the holding time, at infinite portfolio holding time and condition 3 not being met, is zero.
A generally accepted definition of an arbitrage portfolio also exists. And it in no way corresponds to a cointegrated portfolio.
That's great to have written. Unfortunately, I can't say that completely on the content. Let me explain.
I will say up front that I understand everything you have written perfectly. And I will object for this very reason.
The fact is that in practice (not among quantum theories) arbitrage is not free-risk. The first three paragraphs in describe insider trading rather than arbitrage. Front-running, for example.
Practice shows that absolutely any arbitrage is statistical: EURUSD1 vs EURUSD2, EURUSD vs 6E (CME), EURUSD vs EURGBP * GBPUSD, etc.
Arbitrage is only possible in a cointegrated (with certain assumptions) portfolio. These assumptions allow for stronger terming of arbitrage as statistical, increasing risk and liquidity ceiling.
All in all, it is a kind of terminological dispute between algotrader and quantum theorists. I haven't read any books, if the names of some terms are the same, then you can knowingly put a hrenfx_ prefix before the term, e.g. hrenfx_arbitrage. But with all due respect, quantum definitions are more for journals and not for trading.