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Arbitrage strategies can help investors make profits with little risk by taking advantage of price discrepancies. Examples include basic arbitrage, stock arbitrage, index fund arbitrage, and sports betting arbitrage. The use of these strategies can result in guaranteed orders and profits.
The correct use of arbitrage strategies can help the investor to make profits with very little risk. Arbitrage is essentially taking advantage of misquotes or price discrepancies for profit. An individual could get involved in basic arbitrage, stock arbitrage, index fund arbitrage, and even sports betting arbitrage.
The most basic of arbitrage strategies is to sell a product. For example, if a product sells for $20 US Dollars (USD) in one market and sells for $15 USD in another, an individual might buy it in the cheapest market and sell it in the most expensive. This provides a scenario where there is no risk and guaranteed orders for the investor. The investor can make a profit of $5 USD per transaction.
Another popular arbitrage strategy is stock arbitrage. This strategy will involve the use of different stock markets. For example, if the price of a share is $10 in one market and $9.97 in another, the investor could make a profit of $.03 for each share he or she sells between the two. While this may seem like a small potential gain, when it comes to large volumes of stocks, the numbers can add up quickly.
Index funds have also been known to engage in arbitrage strategies. Index funds are based on a particular financial index. The fund invests only in the shares that are presented in the financial index. When a company is removed from the index, another company is placed in its place.
If an index fund company can accurately predict which companies will be included in the fund, it can buy the shares of the companies in advance. When all the other index funds hear about the companies included in the index, they will also have to buy shares of the companies. When this happens, the stock price is going to increase because of all the buying. Investors in the index fund will benefit from this rise due to quick action by fund managers.
Sports arbitrage is another one of the most popular arbitrage strategies available. This strategy involves looking for discrepancies between the major bookmakers in the sports betting industry. A better one will take opposite bets from the different sports books and take advantage of the discrepancy in the odds.
Smart Asset.
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