Option Arbitrage in the Forex Market
(ContentDesk) April 8, 2006 -- An expert from Arbitrage trading which more than 10 years now revealed his share about Arbitrage in the Forex Market.What is arbitrage? Arbitrage is the simultaneous buying and selling of identical financial instruments taking advantage of price discrepancies between different brokers, exchanges, clearing firms, etc. and thus locking in a profit. On paper, arbitrage is a risk-less trading strategy. In the real world however, risks abound. So why trade arbitrage? Well, if the risks can be managed, arbitrage can be extremely profitable if you can find the opportunities and take advantage of the opportunities before they disappear.
After all, the arbitrage opportunity is present because one side is slow to react to market news, momentum, etc. When it corrects the opportunity is gone. Why arbitrage forex options? Well, because the opportunity exists if you look for it. The forex market is a cash inter-bank / inter-dealer market. In simplest terms, this means the foreign currencies traded in the forex market are traded directly between banks, foreign currency dealers and forex investors wishing either to diversify, speculate or to hedge foreign currency risk.
The forex market is not a "market" in the traditional sense due to the fact that there is no centralized location for forex trading activity and, therefore, trades placed in the forex market are considered over-the-counter (OTC). Forex trading between parties occurs through computer terminals, exchanges and over telephones at thousands of locations worldwide. Therefore the forex market is not as efficient as the NYSE for example. Price discrepancies exist between trading platforms, clearing firms, banks, etc if only for a small period of time. Options pricing is also affected for the same reasons but since there are other components involved in pricing an option than just the price of underlying currency, they tend to exist for longer periods of time.
One of the most common causes of option pricing differences is the calculation of volatility. Volatility is generally the standard deviation measured over a period of time. Sounds simple enough right? Well, if you compare the volatility measure across different forex option providers, youll likely find differences as large as 2%. When you find this you have also probably found an arbitrage opportunity. Now that youve found an arbitrage opportunity, how do you trade it? Well, thats a bit trickier and this article cannot possibly cover all the risks associated with pulling off the trade but I will list some issues you should consider.
First of all, are the options really the same? Are the contract sizes, expiration dates and times the same? American or European style? You also need to consider execution risk. Will there be slippage. Will there be a time delay in getting filled. Is the market moving too fast? Exit strategy, how are you going to exit the trade and still capture the profit? What happens if the options expire in-the money? Out-of-the-money? What if you get assigned a position on one option but not the other? These are just a few of the issues one must consider when trying to profit from option arbitrage. The key to option arbitrage is not unlike any other trade -- planning and risk management.
Plan the trade, manage the risks, and execute the plan and you will be successful. by Alwin TanMore Info about Arbitrage please visit www.thegodtips.com.
Introduction To Fundamental Analysis: Forex
FOREX traders almost always rely on analysis to make plan their trading strategies. There are two basic types of FOREX analysis ? technical and fundamental. This article will look at fundamental analysis and how it used in FOREX trading.Fundamental analysis refers to political and economic conditions that may affect currency prices. FOREX traders using fundamental analysis rely on news reports to gather information about unemployment rates, economic policies, inflation, and growth rates.Fundamental analysis is often used to get an overview of currency movements and to provide a broad picture of economic conditions affecting a specific currency. Most traders rely on technical analysis for plotting entry and exit points into the market and supplement their findings with fundamental analysis.Currency prices on the FOREX are affected by the forces of supply and demand, which in turn are affected by economic conditions.
The two most important economic factors affecting supply and demand...
Introduction To Fundamental Analysis: Forex
Forex > Introduction To Fundamental Analysis: Forex
HotSignals.com to be Featured on World Business Review for Innovative Financial Trading Technologies
London, UK (ContentDesk) Febuary 1, 2006 -- Hotsignals.com Inc is to feature in a forthcoming financial series of World Business Review as hosted by Alexander Haig with industry expert Al Berkeley (Former President of Nasdaq). The new series concentrates on new technologies within the financial markets. How these are changing traditional views on investing from an institutional and private investors point of view. Hotsignals feature will include aspects which differentiate the company from existing technical analysis providers along with how new technology is solving investing decisions in the financial markets. Neil Smith, Managing Director and Vice President of Sales & Business Strategy goes on to say 'We are very honoured to be invited to participate in the forthcoming World Business Review financial series.
I believe our technology to be unique, yet at the same time simple to use. The series and our contribution firmly strengthens our reputation as market leader in technical...
HotSignals.com to be Featured on World Business Review for Innovative Financial Trading Technologies
Forex > HotSignals.com to be Featured on World Business Review for Innovative Financial Trading Technologies