Local arbitration

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What happens tomorrow? Ideally, to earn a little bit at the opening, the best - all sold and continue to enjoy life. But not all so simple. Must pass a two-day netting transactions and have to sit and wait - it really is a market. To the trader for two days not to suffer a headache - it predicted in this case can only opening, and then the market is willing to act as anything - we recommend to hedge in the futures market.

Therefore, as soon as 16 hours to procure fund, you should immediately give the order to the futures broker for exactly nine-hour opening of Europe (3.00 in New York) to purchase the opposite futures position, the benefit of our core assets and hedging - are one and the same. So, bought an index fund and hedge futures appropriate index. What happens? Taking a little predictable income arbitrageur neutralizes all of the market. If it goes up, then futures down - and you <on zero> from the time when they took a small profit. Conversely, if the market is open, slide down, the futures are rising, the player sits in a synthetic cache. Two days later, it's all sold - until the next opportunity. Similar situations happen about once a week, with the opportunity to earn in this way from 0.5% to 1%.

Losses are not eliminated, but too small. In general, the rule of thumb is valid: Europe with probability 4:1 opens up after good U.S. news. Yes, there is, despite the fact that in America, a good day, Europe opens down (if the night something happens). We should not fear the big changes at once in the opening - for example, even the morning of 12 September last year, Europe was opened by only 4% below the closing. And then began steadily <move out>.


By this method can not be a lot of money, but to lose a lot of fail. If the day is negative, then the market should not be a member. On the positive days of making money. There is an asymmetric filter, and we are slowly but steadily moving forward, but sometimes a little nervous because of the uncorrelated market reaction.

What are the main parameters of profitability and risk of the program? In the context of a declining market, when the good days is not much, the average yield of 15-17% per annum. When the market is growing and positive news, consequently, more - 20-25%. It is in this range and range rate of return. Risk parameters - 4-5%, the maximum amplitude of the local peak to local bottom is 5%, the average <subsidence> down - 0.5%.

The ratio of return / risk is 4 times higher than average. This is not surprising, the world is built on a 4:1 ratio. Local arbitration - not a game on the dynamics of the market, not an attempt to predict. This use is very clear and understandable correlations between financial instruments that allow you to turn the probability 50:50 80:20 in your favor.

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This method is at an interesting feature. What in the world worse than inflated market, the higher it varies, the better trader. For example, America closed up 0.5%, therefore, Europe will open slightly higher earnings and small. If the market <shakes> 8% down, 4 up, 6% down, 3 up, what happens in reality? 8% down - sit <money> 4 up - is earning 6% down - waiting, 3% up - again making money. In this situation, investors do? In times of uncertainty in the market, they come out of stocks and other risky instruments and invested in bonds, etc. A technique is almost considered to earn more.

Finally, of particular relevance for the Russian market. System <time of arbitration> allows you to control not only the long-term money, but short. For example, some have formed a corporate or private reserves, any account balances, in general, money duration of one month or more, one way or another inactive. That's something they can handle well on a combination of two reasons. This is a weak short-term risk, and 100 per cent, in contrast to many hedge funds and liquidity. The maximum term of the delay in the return of money - three days, if you are forced to go through offsets. Wherefore system <time of arbitration> better regarded as an investment algorithm, and is popular in many Russian structures as the original method of managing short-term balances.

~ Footnote: * The content of the Second International Conference and Exhibition <Internet Investor EXPO>, held October 1-2, 2002 in Moscow.