Market people often confuse themselves with the terms statistical arbitrage and deterministic arbitrage. Especially for people who enter into market, these terms mean a lot as it is something that says about the returns what they get from the market. Most of the shares now are using the term deterministic to attract buyers. But the fact is all the shares cannot be deterministic as it itself depends on the statistics of the market. A clear view of the difference between the statistical and deterministic arbitrage must be imparted to the buyer before they buy any shares so that they will not be in misery in future.
What is deterministic arbitrage?
Arbitrage is a term that talks about the price difference between shares in two or more markets. This is like making advantage of having high price for same shares in one market and low price in another market. Now the shareholder can make use of the scenario and can make more profit in the market, which actually pays more for the same set of shares. In this arbitrage there are two types; one which gives a sure profit and the other is dependent on the market status.
The arbitrage which gives sure profit to the seller is called as deterministic arbitrage. The shares in this arbitrage will be known generally as risk free shares in the market. This is because these shares are meant to give only profit for the buyer and hence the share holder never should have to worry about selling the shares for a loss. The shares and assets like bank bonds and sure value assets like gold and others will come under the category of deterministic arbitrage. But the deterministic value cannot be calculated previously as the market rate may change in future. Whatever the changes happens, the sure profit is fixed. Know More about Risk Analyst Jobs
What is statistical arbitrage and what are the risks involved in it?
The statistical arbitrage is the variable arbitrage which may either provide the customer with high returns or sometimes may give a negative value and end up in loss. The statistical arbitrage is all about risky assets involved. These risky assets include shares of firms, mutual fund shares and others. The statistical arbitrage has different types of risks in it. Here are some of the major risks that often occur.
· Execution risk: generally it is not possible to close more than two transactions at a time. When one part of the transaction is closed and the other one may provide you either with a high profit or a great loss depending on the market status.
· Mismatch: it is a risk about the items bought and sold are non identical. Arbitrage will be conducted under assumption only.
· Counter party risk: The counter party is the one who made a deal to buy the items in future. If they fail in their side, then it is sure loss for the seller.
· Liquidity risk: If the trader is running out of capital then he will be forced to sell whatever he has to run his business. In this case the items must be sold at a price market gives at that time. It can either be a profit or a loss.
What is deterministic arbitrage?
Arbitrage is a term that talks about the price difference between shares in two or more markets. This is like making advantage of having high price for same shares in one market and low price in another market. Now the shareholder can make use of the scenario and can make more profit in the market, which actually pays more for the same set of shares. In this arbitrage there are two types; one which gives a sure profit and the other is dependent on the market status.
The arbitrage which gives sure profit to the seller is called as deterministic arbitrage. The shares in this arbitrage will be known generally as risk free shares in the market. This is because these shares are meant to give only profit for the buyer and hence the share holder never should have to worry about selling the shares for a loss. The shares and assets like bank bonds and sure value assets like gold and others will come under the category of deterministic arbitrage. But the deterministic value cannot be calculated previously as the market rate may change in future. Whatever the changes happens, the sure profit is fixed. Know More about Risk Analyst Jobs
What is statistical arbitrage and what are the risks involved in it?
The statistical arbitrage is the variable arbitrage which may either provide the customer with high returns or sometimes may give a negative value and end up in loss. The statistical arbitrage is all about risky assets involved. These risky assets include shares of firms, mutual fund shares and others. The statistical arbitrage has different types of risks in it. Here are some of the major risks that often occur.
· Execution risk: generally it is not possible to close more than two transactions at a time. When one part of the transaction is closed and the other one may provide you either with a high profit or a great loss depending on the market status.
· Mismatch: it is a risk about the items bought and sold are non identical. Arbitrage will be conducted under assumption only.
· Counter party risk: The counter party is the one who made a deal to buy the items in future. If they fail in their side, then it is sure loss for the seller.
· Liquidity risk: If the trader is running out of capital then he will be forced to sell whatever he has to run his business. In this case the items must be sold at a price market gives at that time. It can either be a profit or a loss.