Every profession in the world does have some terms that will create an illusion and attract people towards it. Sometimes, it may also create a fear about the profession. The statistical arbitrage is again such an illusion term used in the markets. Marketers say that statistical trading is nothing but an alternate term for the pair trading. Pair trading is simple to understand. When a pair of stock is bought or sold based on the relationship between them, then that is called as pair trading, which is now being called as statistical arbitrage.
This is a scenario that happens very usually in the market. When two different companies of same sector have their stocks being shared in the market, then the stocks will follow each other regard with the sector they were in. the pair traders will be continuously following these stocks and they will sell or buy the stocks when their relationship seems to be out of sync. This is usually done on an assumption that the correlation will likely be continued again. Often marketers use to criticize this as a foolproof tactic. But it is not completely true, but yes it does provide path for some other tactics in the investment tools.
What are the risks involved in statistical arbitrage?
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. Some of the major risks that often occur are
· 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.
Bottom line
While being an illusion terms, it is equivalently important to know how the term works with the market and what are the various risks involved in it. This will definitely give a better idea about the term and will kill the fear on the new term. Marketers use to create such terms some times to unify the ideologies. But they should know how to do that and how to avoid fear of terms among other marketers. Many trading academies nowadays offer various trading courses which would help you in understanding all these illusion terms and also guarantees you a good algorithmic trading jobs in worldwide market. Read More on Stock Market Courses Online
This is a scenario that happens very usually in the market. When two different companies of same sector have their stocks being shared in the market, then the stocks will follow each other regard with the sector they were in. the pair traders will be continuously following these stocks and they will sell or buy the stocks when their relationship seems to be out of sync. This is usually done on an assumption that the correlation will likely be continued again. Often marketers use to criticize this as a foolproof tactic. But it is not completely true, but yes it does provide path for some other tactics in the investment tools.
What are the risks involved in statistical arbitrage?
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. Some of the major risks that often occur are
· 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.
Bottom line
While being an illusion terms, it is equivalently important to know how the term works with the market and what are the various risks involved in it. This will definitely give a better idea about the term and will kill the fear on the new term. Marketers use to create such terms some times to unify the ideologies. But they should know how to do that and how to avoid fear of terms among other marketers. Many trading academies nowadays offer various trading courses which would help you in understanding all these illusion terms and also guarantees you a good algorithmic trading jobs in worldwide market. Read More on Stock Market Courses Online