Hedging Arbitrage and Netting Arbitrage
Both hedging and netting arbitrage are arbitrage strategies practiced exclusively by forex traders. Both are risk-free arbitrage practices, but are practiced less common because of the scarcity of (difficulty of finding) arbitrage opportunities.
Hedging arbitrage involves profiting from difference between roll over interest rates (SWAP) between two forex brokers. Here the forex trader simultaneously opens two currency positions for opposite currency pairs. Generally currency pairs with high SWAPS (like GPB/JPY) are selected. Trader opens a position for GPB/JPY at a broker who pays high roll over interest and a reverse position (JPY/GPB) at a broker who does not charge any interest rate. This way he will get profited everyday if the scenario stays same.
Netting arbitrage involves profiting from difference between cross currency pairs at different markets. But this scenario is a rarely and traders need advanced systems to find them. Here the forex trader opens three currency positions simultaneously including 3 different currencies. For example he buys one lot of EUR/USD at 1.5414, sells one lot of EUR/GBP at 0.789.7 and simultaneously sells 0.7897 lots of GPB/USD at 1.9525, profiting $48.125.
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Hedging arbitrage involves profiting from difference between roll over interest rates (SWAP) between two forex brokers. Here the forex trader simultaneously opens two currency positions for opposite currency pairs. Generally currency pairs with high SWAPS (like GPB/JPY) are selected. Trader opens a position for GPB/JPY at a broker who pays high roll over interest and a reverse position (JPY/GPB) at a broker who does not charge any interest rate. This way he will get profited everyday if the scenario stays same.
Netting arbitrage involves profiting from difference between cross currency pairs at different markets. But this scenario is a rarely and traders need advanced systems to find them. Here the forex trader opens three currency positions simultaneously including 3 different currencies. For example he buys one lot of EUR/USD at 1.5414, sells one lot of EUR/GBP at 0.789.7 and simultaneously sells 0.7897 lots of GPB/USD at 1.9525, profiting $48.125.
NobleTrading.com OffersOnline Stock Trading, Online Options Trading
Online Futures Trading, Online Forex Trading
Worldwide Brokerage Service, Day Trading Brokerage
posted by Daniel Pipitone at
6:01 AM
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