Who will not want to make profits with no risk or fewer risk factors affecting your business?Everyone would nod to such an idea. But what this is exactly should be understood before deciding to use such an option. This method of reducing the business risk is termed as arbitrage, which means buying a security from one market and selling it in another market at a better price and claim the profits from it. This is easy income with no great pain or challenge.
But as it is known, every method in a business comes with some kind of a trick inbuilt and we need to beware of all such loopholes before we can invest in such methods. Thus it is crucial to know how to be safe from such divulsions.
Some points to be considered at such times could be:
- Higher transaction costs: since the bidding happens at different intervals, the transaction costs may be high as it is separate for each session.
- Higher margin requirements: making an estimate of thrice the usual margin will be required to execute an arbitrage strategy which can be a cause of worry for the investors as they have to bear such expenses.
- Perfect timing strategy is required: usually, arbitrage opportunities are of short life and they need to be perfectly timed and executed for grabbing the most out of it.
- Multiple dimensions: the trader should be clear about the arbitrage process before he could exercise it. The combination of buys and sells will differ according to each currency combination and this will be a disastrous effect when not learned and understood properly causing complete loss of huge sums of money.
- Advanced monitoring techniques are necessary: there are some techniques available to monitor and find out what may be the results from the arbitrage of securities. This is a pre-built program which needs a lot of patience to understand and simulate. Only when a trader is capable of handling this, it will make his business of buying and selling easier.
Hence the arbitrage process comes as a business strategy with its covered issues which require proper reciprocation from its users. The keynotes for a successful trading experience are :
- Maintain trusted and cordial relation with suppliers so they notify about when the product is at a profitable move.
- Keep a constant check on what may be your barriers and manage them effectively and timely.
- Have a good communication medium for proper movement of information.