Strategy & Returns

An Overview of Historical Arbitrage Strategies

Markets Reward Arbitrage

The large profits available

encourage price stability across markets.

Deployed Strategies

The top emerging arbitrage opportunities exist outside of traditional securities contexts and generally produce higher returns due to the current lack of competition:

  • Online Advertising Arbitrage

  • Real Estate Arbitrage

  • Domain Arbitrage

  • Retail Arbitrage

  • Business Arbitrage

  • Rent Arbitrage

  • Wholesale Arbitrage

For more traditional arbitrage within securities, we refer readers to banks or broker-dealers who are registered to deal and advise in these asset classes: 

  • Put Call Parity Arbitrage.

  • Corporate Bond Arbitrage.

  • Treasuries Arbitrage.

  • Forex Pair Arbitrage.

  • ADR Arbitrage.

  • Dual Listing Arbitrage.

Please keep in mind, securities market arbitrage are mature markets and with the emergence of market makers like Citadel Securities, even large institutional banks are being squeezed out of those spaces. Unless you intend to have an algorithmic edge, it may be best to focus outside traditional competitive securities arbitrage.

Time Arbitrage

Taking advantage of the inherent default human nature to focus on <12 month timeframes, ergo most future valuations are discounted beyond capital costs and on the balance, risk. Bill Ackman's Pershing sources major profits from this strategy. Non-deterministic compute is proving quite useful in this space for multi-scenario predictors. 

Value Arbitrage

Using capital at lower rates to buy cashflow at higher rates. Typically focused more on capital cost vs. cashflow arbitrage, hence buying and holding is a valid execution of this strategy. Berkshire as an example of the most prolific player in this space.

Market Arbitrage

Taking advantage of the immediately available pricing discrepancies between markets. A beginner's game, it is unethical to squeeze these margins and leave nothing for the young upstarts. We purposefully advise handicapping algos to leave opportunity for the new up and comers to learn and hone their craft.

 

Securities Arbitrage

In the world of mature markets such as securities market arbitrage, the game is highly evolved and highly competitive. There exists only room for highly advanced algorithmic traders with billions in highly liquid capital and patience to develop and train new algorithms in current market conditions. New readers may wish to not attempt to compete against securities arbitrageurs in highly regulated markets. A doctorate in mathematics and $100MM in risk capital is often a wise hurdle before considering an entry to this arbitrage market.

Consistent Returns

Arbitrage opportunities are based on spreads:

Uncorrelated to market performance.