Mftexg analyzes the most traditional hedging strategy - arbitrage strategy

 Mftexg analyzes the most traditional hedging strategy - arbitrage strategy

Arbitrage strategy investment principle

It refers to a trading strategy that makes use of the unreasonable price relationship between different assets or different markets, by buying undervalued assets and selling overvalued commodities, in the process of returning to a reasonable price in the future. Mftexg said that the arbitrage strategy targets pricing bias and can be used regardless of the state of the market, and its returns are less correlated with the market.

What are the risks of arbitrage funds tracking error?

Mftexg pointed out that when constructing the CSI 300 index spot portfolio for arbitrage, there will be a deviation between the spot portfolio and the underlying stock index due to the minimum purchase share restriction, the adjustment of the stock index weight, and the inability to buy and sell many stocks at the same time.

Shock cost: Shock cost refers to the cost of overpayment in arbitrage trading that requires rapid and large-scale buying and selling of securities, but fails to trade at the predetermined price.

Liquidity risk: The risk of not being able to trade due to suspension of stock trading and price limit when trading a portfolio of spot stocks.

Technical risk: Since arbitrage opportunities are often fleeting, manual orders cannot be placed at the same time for spot portfolios and stock index futures. Therefore, it is necessary to choose an efficient and stable trading system.

Strategy capacity risk: If the amount of arbitrage funds is too large, the effect of the arbitrage strategy will be greatly reduced due to the restrictions on the number of orders and positions placed by the exchange.

How to choose an arbitrage fund?

Hardware facilities: Market arbitrage opportunities are fleeting, and quick capture of arbitrage opportunities requires high-speed computer software and hardware support. Even in the event of power outages and other emergencies, the normal operation of arbitrage equipment must be guaranteed. Therefore, it is appropriate to choose a manager with better hardware conditions, Mftexg explained.

Strategy capacity: If the arbitrage fund exceeds the capacity of the fund strategy, the arbitrage efficiency will be greatly reduced. Therefore, investors should avoid choosing arbitrage products whose scale is too large.

Historical performance: Observe whether the historical performance of the product is stable and upward, and avoid products with volatile performance trends. The long and short of domestic long and short positions strategy.

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