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#6
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[ QUOTE ]
I don't consider arbitrage trading, it's just a another form of investing, albeit one with a clear edge. Pure trading I would categorize as predicting price movements. [/ QUOTE ] I do a lot of very short term arbitrage and it is I think the definition of trading. Execution is critical and missing a leg is a real possibility. I do some longer term arbs too and those are relatively safe and you can hold them until they come in without much worry. There are all kinds of arbitrage, some very risky and some where the only risk is execution. The eurodollar (most liquid commodity contract) for example is an arbitrage trade. At least for the guys trading it as market makers. They get their edge and lay it off asap in a different month. Same with options market makers. If a customer comes in selling calls and they buy them they lay it off immediately with the underlying or a different option they are leaning on when they make the trade. The market maker isn't predicting anything. He is just perceiving a temporary price imbalance and trying to take advantage of it. I consider predicting price movements to be pure speculation. |
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