Arbitrage between Cash and futures market
hi,
Can experts please clarify my douts in Arbitage between Cash and futures market.
For eg today
Vsnl July Cashmarket is Rs 337.90
Vsnl July future market is Rs 346.65
Difference between (Future - Cash)(346.65 - 337.90) = Rs 8.75
Now iam buying Vsnl in Cash market and simaltaneously selling Vsnl future Contracts.
Next what to do .i have to square of both the postions in Cash and future markets. or i have to leave it to expiry to book the profits.
Suppose during expiry Vsnl cash is Rs 320 and Vsnl future is 321. this will be a loss when i square the postions in cash and futures.
In this Case how to do arbitrage to make the profit . Clarify me with clear cut examples.
Traderji said:
Here is a simple explanation:
Suppose you own 600 shares of Satyam. One trading day you notice that Satyam is trading at 505.00 on the BSE and 500.00 on the NSE. You sell your 600 shares on the BSE at 505.00 and simultaneously buy back the 600 shares on the NSE at 500.00.
You profit in this case is 600*5.00 = 3000.00 less brokerages if any.
Generally in the west, large institutions have automated trading programs that scan different markets across the globe to take advantage of arbritrage opportunities as small as a fraction of a point. Because of their volumes and almost no brokerage these institutions make profits out of these.
Suppose you own 600 shares of Satyam. One trading day you notice that Satyam is trading at 505.00 on the BSE and 500.00 on the NSE. You sell your 600 shares on the BSE at 505.00 and simultaneously buy back the 600 shares on the NSE at 500.00.
You profit in this case is 600*5.00 = 3000.00 less brokerages if any.
Generally in the west, large institutions have automated trading programs that scan different markets across the globe to take advantage of arbritrage opportunities as small as a fraction of a point. Because of their volumes and almost no brokerage these institutions make profits out of these.
Can experts please clarify my douts in Arbitage between Cash and futures market.
For eg today
Vsnl July Cashmarket is Rs 337.90
Vsnl July future market is Rs 346.65
Difference between (Future - Cash)(346.65 - 337.90) = Rs 8.75
Now iam buying Vsnl in Cash market and simaltaneously selling Vsnl future Contracts.
Next what to do .i have to square of both the postions in Cash and future markets. or i have to leave it to expiry to book the profits.
Suppose during expiry Vsnl cash is Rs 320 and Vsnl future is 321. this will be a loss when i square the postions in cash and futures.
In this Case how to do arbitrage to make the profit . Clarify me with clear cut examples.