Arbitrage-Trading.jpg 💥💥Arbitrage trading is a type of trading strategy that involves taking advantage of price discrepancies between two or more markets to generate profits. This strategy involves buying an asset in one market and simultaneously selling it in another market where the price is higher. The goal of arbitrage trading is to profit from the price difference between the two markets. In quantitative analysis, there are several techniques used in arbitrage trading, including: 👉 1. Statistical arbitrage: This technique involves using statistical methods to identify pricing anomalies in the market. Statistical arbitrage traders use complex algorithms to identify patterns in the data that indicate a potential price discrepancy. 👉 2. Triangular arbitrage: This technique involves taking advantage of price differences between three different currencies in the foreign exchange market. Traders use mathematical models to identify triangular arbitrage opportunities and execute trades to generate profits. 👉 3. Merger arbitrage: This technique involves buying and selling stocks of companies that are involved in a merger or acquisition. Traders attempt to profit from the price difference between the stock prices before and after the merger or acquisition is completed. 👉 4. Convertible bond arbitrage: This technique involves taking advantage of price differences between a company\u0027s stock and its convertible bonds. Traders buy the convertible bonds and short the underlying stock to profit from the price difference. 👉 5. Cross-border arbitrage: This technique involves taking advantage of price differences between assets in different markets. Traders look for assets that are priced differently in different markets and execute trades to take advantage of the price discrepancies. 👉 6. Tax arbitrage: This technique involves taking advantage of differences in tax laws between two or more countries. Traders look for assets that are taxed differently in different countries and execute trades to take advantage of the tax differences. 👉 7. Index arbitrage: This technique involves taking advantage of price discrepancies between the price of an index and the prices of its underlying components. Traders look for differences in the prices of the index and its components and execute trades accordingly to take advantage of the price discrepancies. arbitrage.jpg 💥💥Overall, arbitrage trading can be a complex and challenging strategy that requires a deep understanding of the market and the use of sophisticated quantitative analysis techniques.
Trading-and-Investing.jpg 💥💥 In this point we have given an example of Algoritmic trading, a technique that traders use to make real profits and is still widely used today. Some traders still use some of these techniques to make profits in the present, but for new traders, learning trading techniques is essential because it allows traders to make profits in many ways, even in constantly changing market conditions. 👉 Momentum Trading: This strategy involves buying stocks that are showing upward momentum in price and selling those that are showing downward momentum. Algorithms are used to identify the stocks that are exhibiting such momentum patterns, and trades are executed automatically based on those signals. 👉 Mean Reversion Trading: This strategy involves buying stocks that have recently fallen in price and selling those that have recently risen in price. Algorithms are used to identify stocks that are exhibiting these patterns, and trades are executed automatically based on those signals. 👉 Arbitrage Trading: This strategy involves taking advantage of price discrepancies between different markets or instruments. Algorithms are used to identify these discrepancies and execute trades automatically to capture the price difference. 👉 Statistical Arbitrage Trading: This strategy involves identifying pairs of securities that are statistically related and trading them when the relationship breaks down. Algorithms are used to identify these pairs and execute trades automatically based on those signals. 👉 High-Frequency Trading: This strategy involves using algorithms to make rapid trades based on small price movements in the market. High-frequency traders typically use sophisticated algorithms and powerful computer systems to execute trades at lightning speed. 👉 Market Making Trading: Market makers are traders who provide liquidity to financial markets by offering to buy and sell securities at all times. Algorithmic trading can be used to automate market making activities, allowing traders to respond quickly to market changes and adjust their prices accordingly. This can be particularly useful in fast-moving markets, where manual trading may be too slow. 👉 Trend Following Trading: Trend following algorithms are designed to identify and follow long-term market trends. These algorithms typically use technical indicators such as moving averages, Bollinger Bands, and momentum indicators to identify trends and enter and exit trades. Trend following is a popular strategy used by commodity trading advisors (CTAs) and other quantitative trading firms. 👉 News-Based Trading: News-based trading algorithms use natural language processing (NLP) and machine learning techniques to analyze news articles, social media posts, and other sources of information to identify market-moving events. These algorithms can then execute trades based on the sentiment and relevance of the news article. 👉 Pattern recognition Trading: This technique involves using machine learning algorithms to identify patterns in market data. These patterns can be used to predict future market movements and inform trading decisions. 👉 Sentiment analysis Trading: This technique involves using algorithms to analyze market sentiment, which refers to the overall feeling or mood of investors about a particular asset or market. Traders can then use this information to make trades based on how they think the market sentiment will affect the asset\u0027s price. 👉 Multi-asset class trading: This technique involves using algorithms to trade across multiple asset classes, such as stocks, bonds, and commodities. Traders can use these algorithms to identify opportunities for diversification and risk management across their portfolio. 💥💥 These are just a few examples of the many different algorithmic trading techniques that traders use. As technology continues to advance, we can expect to see even more sophisticated algorithms and techniques emerge in the world of trading.
Today, the concept of futures and options is one of the most frequently uttered in the market. Let\u0027s get acquainted with these financial instruments, give them concepts and consider the mechanism of their use. Futures and options are derivatives, and they are also called derivatives. When buying these financial instruments, the trader does not get the asset itself (stock, bond, etc.), but a contract – an opportunity to perform a purchase and sale operation in the future, at a fixed price. Simply put, a derivative is an insurance that protects the trader from possible adverse fluctuations in the price of the main asset futures-option-trading-system.jpg Little history. Initially, derivatives were created to reduce the possible risks of producers of certain assets in the form of goods. Let\u0027s look at a simple example: Company A produces flour, which is its basic asset. Today, on the conditional market, company A can purchase a contract for the sale of 10,000 tons of flour for $100, with a sales period of 3 months. In fact, after 3 months, company A can sell its flour for a fixed $100, despite the fact that the cost of flour may fall to $80. With this contract, the company predicts and fixes its income, which will be $1,000,000, and the contract is called - futures, a contract \"for the future\". There is a possibility that the cost of flour will increase to $120 per ton, and in this case, company A will receive less than $200,000, since the market value of 10,000 tons of flour will be $1200,000. The buyer of such a contract can be company B, which is engaged in the production of bread, and therefore the market price of flour is also important for it. A private trader needs derivatives in order to get a fixed price of a purchase and sale transaction, such as a stock or currency, as well as an asset that cannot be purchased by a trader, such as oil. financial-furures-contracrt.jpg Let\u0027s talk about which futures and options are the most popular in the world right now. Today, the most\" popular \" are derivatives for currency, stocks, precious metals, and oil. It is worth saying that a little more than 10 years ago, the purchase of a futures contract meant the delivery of a real asset, that is, in our case, the delivery of flour. Today, the lion\u0027s share of derivatives are non-deliverable, and on the day of the end of the contract, counterparties are paid in money. Let\u0027s look at the mechanism in our example. So by the end of the contract, company A must receive a fixed $ 1,000,000 under the terms of the futures contract, which must be paid by company B. Since their derivative is non-deliverable, at the end of the contract period, company A will not supply flour to company B. What\u0027s going on? Company A displays the tonnage of flour on the commodity exchange, with the possibility to sell it to any company, including company B. the tonnage is received at a warehouse accredited by this exchange. At the same time, company B has the opportunity to purchase its 10,000 tons set by futures from another company and receive them at another warehouse accredited by the exchange. futures-trading.jpg The price of flour may change, and may not be equal to the set price in the contract. - Let the price drop to $80 per ton. In this case, company A sells its asset at $80 per ton, receiving $800,000, and the remaining $200,000 is paid to it by company B, so in total, company A will receive $1,000,000. At the same time, company B will buy 10,000 tons of flour for $80 from another supplier, spending $800,000, and with the amount of future compensation paid to company A in the amount of $200,000, its total expense will be $1,000,000, as planned. - If the cost of flour increases to $120, in this case, the difference will be paid by company A to company B. Many novice traders have a question about the possibilities of trading options and futures in various markets, for example, stocks and bonds. The answer is Yes. However, there are restrictions related to the duration of such contracts. In our example – 3 months. If the contract was conditionally concluded in June, it ends in September. The value of a derivative always depends directly on the value of the underlying asset, and the value of both instruments tends to be equal. Because of this dependence, futures and options are called derivatives. Traders earn money using derivatives, for example, on arbitrage transactions, but at the same time derivatives do not cease to play an important role in hedging operations – insurance of transactions. Let\u0027s take a closer look at the features of both financial instruments. Let\u0027s start with futures. Futures a contract that involves the sale of the underlying asset at a fixed price, with a set delay in execution-payment. Futures fix the purchase or sale price of the underlying asset at the expiration of the term, and the market value of the asset may change. If the futures contract is non-deliverable, then only monetary payments between the parties to the contract are made on it. It is worth saying that the delivery of the asset does not necessarily have to be made on time, in other things, as well as the purchase, but in this case there is a probability of price changes, and the risk of loss of profit. Consider the mechanism for concluding a futures contract. The contract is concluded exclusively on the exchange. The seller puts his offer on the exchange with its price, volume, and due date. After a buyer appears who agrees to these terms and conditions. The seller can also choose a ready-made request from the buyer, which has a set price, volume and deadline for execution. This list of applications is always present on the exchange, and applications often differ little. Any of the participants in the transaction sees this list and chooses the most suitable one for them according to the condition. This list is called a glass and is displayed in the program that traders use. The greater the depth of the glass, the more flexible it is possible to enter into contracts, viewing more offers and as a result choosing the most suitable conditions in the case of the buyer, and at the same time more likely to conclude a contract in the case of the seller. Some trading programs allow you to set the depth of order book, for example, Terminal, where you can set your desired depth. The order book in the Terminal program is shown below. trade-terminal-system.png Obligations to execute futures are transferred to the exchange. When the date of execution of the futures contract and the conditions under which the seller will be obliged to pay remuneration (if the price of the asset has fallen), the exchange itself transfers the amount to the seller\u0027s account and withholds this amount from the buyer\u0027s account. If there is a situation that the buyer\u0027s account of the contract does not have the necessary amount, then this will be a problem that will be solved by the exchange, not the seller. The situation is the same in the opposite case if the seller must pay compensation to the buyer. The exchange carries risks, so before entering into contracts, both parties make a cash Deposit calculated according to the exchange\u0027s formula. Most often, its value can be double the size of the fluctuation of the futures price in one day. So if the price fluctuation was 3 %, then the collateral may be 6% of the price of the futures contract. The Deposit is refundable, and is returned to the account of the parties after the execution of the futures. If the participant refuses to fulfill the contract, the Deposit will be deducted from the exchange\u0027s account as compensation. Sometimes there is a need for early termination of the contract, in which case its value will be equal to the value calculated by the exchange on the day of termination. That is, the exchange calculates the price of the contract on a daily basis, while it uses its own rules for calculating the cost, but focuses on the prices that are offered on the market by bidders. As mentioned earlier, the price of the futures is slightly lower than the value of the underlying asset, but the difference is small. Sometimes there is a short-term gap that is associated with market situations, which allows you to earn using an arbitration transaction. You can also make money on futures during the day. So the exchange recalculates the price of the futures, respectively, every day, when its price increases, it charges the difference between the value of the contract and its current value, while the amount of collateral also increases. When the contract execution time comes, the price of the futures becomes equal to the market value of the asset. In General, we can say that a futures contract is a convenient financial instrument that allows you to reduce financial risks. At the same time, speculative operations with this tool are quite complex and, often, it is possible to make money on them using automated tools, such as trading robots. For example, the trading robot \"Edward\". The next financial instrument is an option. This is also a contract, but not for the amount of the sale or purchase, but for the opportunity to buy or sell the underlying asset at a fixed price at a specified time. By type of transaction options are: - Call option – an option to purchase; - Put option – a sell option. option-trade.jpg Option contracts are also traded only on the stock exchange. The participant who bought the option has the right to refuse the transaction at any time if it is not profitable for him, while the seller of the option has no right to refuse it. Thus, if the buyer uses the right of the transaction, the seller is obliged to fulfill it. This condition makes this financial instrument very difficult for an inexperienced user, and allows him to trade confidently using various trading robots or trading systems, coupled with the ability to predict possible market situations. An option can be said to be insurance against possible losses. In case of refusal, the buyer loses an amount equal to the value of the option, which is insignificant in comparison with possible losses. This amount is the seller\u0027s premium. Considered example: Trader A purchased 100 shares of Trend LLC at $10 per share. He plans to sell these shares in 2 months. Trader B offers him an option contract for the sale of 100 shares of the Trehd LLC, with a period of 2 months for the price of $15 per share. The option price is $100. Let\u0027s assume that the transaction took place, let\u0027s consider two possible scenarios: - Let\u0027s assume that the price of the Trend company\u0027s shares fell to $7 per share by the time the option was exercised. In this case, trader A will not only not lose, but also earn. $1500 (optional sale) - $1000 (initial costs) - $100 (seller\u0027s premium) = $400 -profit . - Let\u0027s assume the share price has increased to $17 per share. Thus, the trader had to waste $100 on the purchase of the option. $1700 (optional sale) - $1000 (initial costs) - $100 (seller\u0027s premium) = $600 -profit. And without the option, the profit would have been $700. An option, like a futures contract, is a non-deliverable contract. If the buyer uses the option, the seller will simply pay the difference between the current price of the asset on the market and the option price. Put-option-trading.jpg As mentioned earlier, trading on the stock exchange using options is quite complex, and a market participant needs to be able to predict situations. For call options, you must set a price that will be lower than the expected price after a set period, for a put option, on the contrary, higher than the expected price. Option prices are calculated using statistical data on fluctuations in the asset value. Many users are helped in this by various programs, trading strategies, and trading robots that calculate situations using market data. which for example can be obtained in Hydra. The one who sells the option is exposed to greater risk, its profit is the value of the option, and the loss is unlimited, as it depends on the price fluctuation. Any transactions with derivatives are associated with various risks. The task of the trader is to choose the optimal solution, including the choice of an asset, a trading platform, a strategy, and a trading robot. Manual trading does not bring the necessary income on speculative transactions, so working with trading robots makes the trader\u0027s work profitable if the conditions are chosen correctly.