Naming Relative-Value Trades Across Separate Markets

Summary

The document asks how to classify a strategy that goes long in the cheaper of two markets and short in the more expensive one after their prices diverge beyond a threshold. The assets are described as fungible, but the strategy does not move them between venues. The response explains that physical transfer or direct netting is not required for a trade to be discussed as arbitrage in a broad sense. It notes that the term is also used for strategies whose profits are uncertain, such as statistical arbitrage.

Depending on the instruments and market relationship, the same setup may be called pair trading, relative-value trading, or arbitrage. The labels are not interchangeable in every context, and the response offers no criterion for determining whether this particular trade is riskless. A price spread can persist or widen, and the document provides no execution, financing, settlement, or empirical details needed to evaluate profitability or arbitrage risk.

Key ideas

• A cross-market long-short strategy does not require physically transferring assets between venues.
• Pair trading, relative-value trading, and arbitrage may describe similar strategies depending on the instruments and context.
• The term arbitrage is also used for strategies that do not guarantee a sure gain.
• The document does not establish that the proposed spread trade is riskless or profitable.

Tags

# What is arbitraging without moving assets called?


# What is arbitraging without moving assets called?












I am currently trying to arbitrage across two markets A and B. My trading strategy is as follows: if the price between A and B differs by more than X%, then go long on the lower priced market, and short on the higher priced market, and vice versa.

The assets are otherwise fungible.

Since there is no actual movement of assets across the markets, two questions are prompted: 1. Is this technique still arbitrage? 2. What is this technique called?

## Answer by Lliane (score 0, accepted)

https://quant.stackexchange.com/a/37112

Arbitrage doesn't necessarily require the assets to be fungible or the profit to be realized by netting them against one another. It is a very generic term. People talk about statistical arbitrage which doesn't guarantee a sure gain, or for instance China-Hong Kong AH shares arbitrage where the underlying stock is not even fungible.

What you describe could be called pair trading, relative value or arbitrage, it really depends on the assets you are trading.

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