>>In order to make a decent profit out of arb, I suppose you have to have pretty good size capital. True arb should not have any risk, but the return is very minimal...<<
There is always risk, but you are right that the risk is minimized and lies basically in the risk that one's assumptions about price relationships could be wrong, or the relationship could change very quickly. Mostly, market directional risk is removed.
As to minimal returns, while not "true arb", the XLK/QQQ arb system I am using returns an average of 1.6% per trade (before slippage and commissions), including losses, with an average holding period of only 2 days. Not bad. A skillful trader can leg into and out of the position in such a way as to take advantage of a strong intraday trend and tack on a few ticks more profit - essentially "reverse slippage". Example - yesterday afternoon I needed to short QQQ and long XLK. Market was tanking, so entering the QQQ short first and the XLK later would have given me a built-in spread or profit right out of the gate. I try to do this on my options straddles also where the spreads can be nasty and if you don't leg in advantageously, you start out in quite a hole after commissions and giving up the bid-ask spread.
BTW - I just found out that QQQ trades until 4:15? At least it did on the AMEX, but how about on the NYSE? How many times have I raced to close out a daytrade position by 4PM, and seen a fill at like 4:02. Always wondered about those "late" fills. (I don't have access to trading QQQ on Island ECN, where some traders can go till 8PM.)
Phoenix |
