Conditions for Arbitrage
1. Asset Availability: In trading, the asset must be listed in two stock exchanges, which are to be considered for arbitrage trading. For instance, if a person is planning to purchase a share of ABC company on the National Stock Exchange and sell it on the Singapore Stock Exchange, he must make sure that the shares of ABC company are listed on both stock exchanges.
2. Price Difference: To practice arbitrage, there must be a difference in the price of an asset in two different markets. Without price difference, there would be no profit generation.
3. Simultaneous Transaction: Arbitrageur should carry on trading of shares simultaneously in different markets to capture the price difference. The period for which the price inefficiency occurs is very short, hence, the trader should complete the transaction as early as possible to gain a profit.
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