FT MarketWatch

Index arbitrage

A strategy designed to Profit from temporary discrepancies between the prices of the stocks comprising an Index and the price of a futures Contract on that index. By buying either the stocks or the futures Contract and selling the other, an investor can sometimes exploit Market inefficiency for a profit. Like all Arbitrage opportunities, index Arbitrage opportunities disappear rapidly once the opportunity becomes well-known and many investors act on it. Index Arbitrage can involve large Transaction costs because of the need to simultaneously Buy and Sell many different stocks and futures, and so only large Money managers are usually able to Profit from Index arbitrage. In addition, sophisticated computer programs are needed to keep track of the large number of stocks and Futures involved, which makes this a very difficult Trading strategy for individuals.

Related Terms: 24 Action, Arbitrage, Buy, Contract, Futures, Futures contract, ISIN, Index, Index arbitrage, Money, Manager, Market, Market inefficiency, NOW, Own, Profit, PPO, Put, Program, Rent, Sell, Transaction, Trading, Unit
Other Related Pages: Category: Trading Starting With: I
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