Just what is Arbitrage Investment?
In the simplest of terms, Arbitrage means to exploit price differential. Usually it meant looking at differing sources of an investment, and if there was a price difference between Source A and Source B - then the investor / dealer / broker / manager would buy from the lower priced source, and sell on the higher priced source. Example:-
The price of Stock ABC was $20 per share on Exchange XYZ
The price of the same Stock ABC on another Exchange 123 - was $15 The dealer would buy the stock from Exchange 123 for $15 - then sell on Exchange XYZ for $20 - making $5 per share profit (minus costs). Typically the price differential was very small - and trading had to be extremely quick and liquid - otherwise the markets could go against you in a very short time. Ten years ago Arbitrage was more commonplace than it is today - for a number of reasons. Nowadays, Arbitrage still exists, but either in limited formats and availability as direct arbitrage, or more commonly in Hedge Funds. Hedge Funds can have Arbitrage as one of their investment methodologies / strategies - and you will find that many of the past Arbitrage Managers have switched across to Hedge Funds. Even after the LTCM (Long Term Capital Management) scandal / fiasco a few years ago - Hedge Funds continue to grow, and today are the biggest and fastest growing investment style in the World. This doesn't mean that Arbitrage is dead - as it can be part of Hedge Funds. There are still some direct / explicit Arbitrage Funds available in the World. Most of these concentrate on M&A Arbitrage (Mergers and Acquisitions) - or more usually Mergers. The manager will actively seek companies which have been targeted as potentials for takeover, and buy into that company, in the hope the M&A activity will drive up the price. This method is often enhanced by the use of leveraging (gearing up / borrowing) (remember LTCM?) - and sometimes using Derivative Structures such as Options - or hedging methods such as selling short. Depending on the structure, methodology, management style, leveraging etc., the potential rewards can be substantial, but so can the risks. Not all Arbitrage investments are the same - just like any other asset class, I would strongly suggest that anyone considering this should perform their own Due Diligence and seek professional advice. One very common place where Arbitrage happens every day - by people just like you and me..... is eBay! Sellers are locating items for sale from sources which may sell them very cheaply (flee-markets, garage sales etc.) and then selling them online for a tidy little profit. These people are exploiting the price differential - arbitrage - and there's nothing wrong with that!! It's all about 'Supply and Demand' - but that's another story! (the information contained herein is for information purposes only and should NOT be considered as advice or recommendation relating to the purchase or sale of any investment). An article by Gary Durkin
Founder of the Internet Advice Center®
http://www.InternetAdviceCenter.com Gary has more than a decade of offline international business success behind him - each day controlling millions of dollars of investments world-wide, and has been doing business online for 6 years. © Copyright 2005 - All Rights Reserved worldwide. You are free to distribute this article, providing it remains unchanged and with the resource / bio box attached.
Related News
|
 |
|
|
RELATED ARTICLES
Day Traders and Swing Traders and Options? Maybe!
Typical day traders and swing traders look for stocks with quick,
short term movements, and are not in the business of holding
positions overnight let alone a week or two. So the use of
options has not usually been a component of their trading
strategies.
Holy Grail Investments
Every year I go to the Money Show in
Orlando, Florida. Thousands attend. It is mostly
an older crowd with the youngsters about 40
years of age. I have been saying for years that
until you have lost enough money trying to make
a fortune you will not become serious about
investing. The under 40's are shooting for the
moon and it has finally dawned on the over 40's
(maybe it's the over 50's) that they must find a
better way to get rich.
DXPortfolio: A Great Passive Investment of 25% to $40% per month
First, I need to explain about e-currencies or digital currencies. DXPortfolio are based and supported by the supply and demand of e-currency. Before, I go on to explain how I have used my e-gold account in accordance with my DXPortfolioto grow a nice size nest egg for later (which is growing as we speak), I have to tell you something. As you can guess, the growth of digital currencies are just beginning. That brought me to the idea of DXPortfolio. This is a portfolio based on the ongoing collection of worldwide e-currency exchange fees. Since these fees will only increase, the portfolio will only increase. As you can see it is a win win situation. The only factor that is involved is how fast or slow it will increase. My experience has shown an average gain in my portfolio of between 25% to 40% increase per month. That will account to an increase of over 500% per year. I have been involved for over 6 months and plan on continuing my involvement. I almost forgot the best part. While this DXPortfolioincrease you can borrow the money you invested to use in other areas, and the portfolio still increases the same. Yes, you read it right. You can continue to use the money you invested while it continues to show profit. If you are interested in this kind of opportunity, I will tell you how I am doing it.
Before you begin, you need to open a e-gold account. This is a free account that we will need to fund the DXPortfolio and also get the money back out for use.
Lessons in Transition
Q: What have been the most successful approaches to attracting direct foreign investments: offering prospective investors tax breaks and similar benefits, or improving the overall investment climate of the country?
The Realities Of Market Timing
Market timing systems are based on patterns of activity in the past. Every system that you are likely to hear about works well when it is applied to historical data. If it didn't work historically, you would never hear about it. But patterns change, and the future is always the great unknown.
Justify Social Security ... Dont Save for Retirement
It is a common question when investors review their retirement plan-should we include social security benefits into our retirement income projections?
Raising Capital in Today?s ?New Economy?
We've helped a number of clients develop business plans and raise capital from "angel" investors, corporate entities and venture capitalists during the last 6-8 years. It's always a daunting process that can be full of pitfalls and require a tremendous amount of work ? but it can be done! Here is some perspective gleaned from years of experience.
Porters Five Forces Analysis
If you've ever listened to Warren Buffett talk about investing, you've heard him mention the idea of a company's moat. The moat is a simple way of describing a company's competitive advantages. Company's with a strong competitive advantage have large moats, and therefore higher profit margins. And investors should always be concerned with profit margins.
Pros & Cons of Investing in Bonds
What are Bonds?
The Cost of Green Eggs and Ham
Young readers know that March 4th is the birthday of Dr. Seuss. Many parents trip their tongues over Seuss stories like "Green Eggs and Ham". "Do you like green eggs and ham?/I do not like them, Sam-I-am./I do not like green eggs and ham".
Investing In Sons Business Could Cause A Real Family Feud
Q: My youngest son wants to borrow $5,000 to start his own business. My wife is afraid to tell him no. She thinks we should just give him the money and not expect anything in return. I disagree. He doesn't have a very good track record with money, so I'm a little worried that my investment will be lost. Should I loan him the money and hope for the best or just tell him no and hope he doesn't get too upset?
Finding False Gold in Penny Stock
As far as traders go, many do not see the penny stock as a solid way to do business. Many believe that dealing with penny stock is a risky business. And it really is. Some traders think that the next Microsoft and Walmart stock is buried in a penny stock, which is why they stick around trading unknown stocks over the market.
Everybody Wants to Know How to Invest
Those unfamiliar with the process of making and managing investments often have more than a few trepidations about investing in general. They figure that, since they do not know how to invest, they will never learn. Of course the horror stories of investors who lost their life savings on some bad deal don't help people to feel any less secure when figuring out how to invest.
Will a Falling Dollar Derail Your Plans for Retirement?
How much are you willing to pay for a tank of gas? We've all watched as gas prices hit record highs, but what would you do if you filled your tank and paid by credit card only to discover on your monthly statement that you paid $80 to fill an economy car. No, this is not some future doomsday projection of oil prices. This scenario recently happened to a colleague on business in Europe.
Sitcom Investing
A fickle stock market encourages good-humored mockery.
Investing: Do You Want To Make Money, Or Would You Rather Fool Around?
It always amazes me how much stock market investors resemble horse track bettors. Some are very conservative, willing to trade low returns for relative safety. Others bet with both hands, looking for the big score. In this article, I'd like to introduce you to a few characters I've met at racetracks. Then we'll see what they can teach us about investing.
Art Investing for a Financial Future
When we think of investing we probably conjure images in our minds of the New York Stock Exchange, suited stock brokers making deals, bonds and treasury bills, and all manner of financial matters. The last thing we probably think about is art. Art investing, however, can be a big money business, and can create incredible financial gains and losses for those who choose to speculate in the art market.
Before You Start Investing
There maybe several reasons why you to want to invest your money. You may want to retire early, want to build your own business in the future, or to pay for your kid's education. Should everyone start investing outside their retirement accounts right away? The answer to this question is that it depends on your financial situation. First, you must have a basic understanding in financial management. What would happen if you lose your job, accumulate large medical expenses, or losing money on your investments? Do you still have money to pay your bills? Do you have to sell your investments that you have worked so hard for, with a loss? No one knows what the future will bring. Therefore, you must have a safety net to fall back on in an unexpected event. This article contains 5 concepts that you should follow before you start investing outside of your retirement accounts.
The Economys Greatest Depression Downturn Ever Is Now Just A Few Years Away
What really controls the economy? Forget interest rates, forget deficits, forget the Fed, forget IRAQ, forget which party is in office. In fact, forget just about everything that permeates the news. The greatest force that has controlled the long-term trend of the economy for at least the last century doesn't give a fig about any of these side-shows. And just what is this "greatest force" now telling us in 2005? The same thing that it has been telling us for at least the last twenty years - that the onset of a catastrophic depression, unprecedented in history, has been marching silently and steadily towards us, and that it is now just a few years away.
Eight Questions to Ask Your Financial Advisor
You may like your financial advisor, but is he really looking out for you? All advisors are not created equal, and you have a right to know what makes them different! You also have a right to ask yours if he compares!
|
