Online arbitrage is a type of retail arbitrage which allows traders to enter and exit the market using a stop-loss order or even sell and buy to their maximum potential. This involves buying low and selling high in the same market. The trader then uses this strategy to enhance his profit. However, the trader has to make sure that he manages his capital very well so that there is no risk of mismanagement.
Arbitrage is the term used in the real world for entering and exiting the market at the price of the two stocks, which are superior to the other. Traders who do not have the expertise or time to handle the situations could just make mistakes and lose the money in the long run.
The following are some points to note before trading on retail arbitrage:
Choose the exact time when you are going to enter the market. You need to enter the market when the stock is at its lowest price or else you might lose your investment. Before entering the market, it is a good idea to check the price and choose the best time to enter the market. It is more advisable to enter the market as early as possible to avoid the risk of losses.
The amount of money you will be risking is also a consideration. The money you would be putting on the table has to be at least equal to the cost of the entry. Usually, the minimum entry price is 50%. There are also some arbitrage venues where the entry and exit price are not fixed and the trader can decide the price, as well as the amount he wants to invest. In these instances, the maximum price is decided by the trader.
A lot of arbitrage venues, such as the New York Stock Exchange and Nasdaq, allow a limited number of trades per day. These venues can be considered as short-term venues, since they only let one trader in for every hundred. If you are a regular trader in a bigger venue, it is wise to stick to it for a while and then get some experience.
Arbitrage is not always successful. Not all the entries made by traders make a profit. The trade might not work out for the trader.
Locals dealers are very good at entering the market when they see the entry at the lowest price. Traders from both sides use this strategy to increase their returns. However, the arbitrage venues are limited to just one trader and so it is very difficult to make a profit. At least one of the traders has to be ready to give up on his original investment and he has to be prepared to exit at the earliest.
Some brokers offer retail arbitrage lists to their clients. If you wish to have access to the list, you have to contact the broker and request for the list. A broker can be helpful in understanding how to do arbitrage and also in executing the trade, if it comes to it.
The arbitrage list will include the lowest price, bought and sold as well as the minimum entry prices in most cases. One should use the online arbitrage list and do research about the forex market before entering the market.
Traders who use the arbitrage list may make some mistakes, but this list should be beneficial for the trader in case of a mistake. One should however ask the broker about the arbitrage list before using it.