|
|
1. **Arbitrage**
In the development of the past 30 years, concepts such as arbitrage and rational investors have become fundamental in finance. From a professional perspective, we often equate rational investors with arbitrage traders—those familiar with behavioral finance will understand this well.
What does arbitrage mean?
Arbitrage is usually described using the term "arbitrage opportunities." Arbitrage opportunities refer to conditions where one can earn returns without any risk. Theoretically, these are divided into the first and second types of arbitrage opportunities.
The first type involves opportunities where investors can start with zero initial investment, meaning no costs are incurred at the time of investment. Typically, this is achieved by short-selling some assets and simultaneously buying others, resulting in positive returns at the end.
The second type refers to opportunities where investors can start with a negative initial investment, meaning the proceeds from short-selling are not entirely used to purchase other assets. However, the end returns are non-negative, requiring no additional expenditure for closing the position.
First-type arbitrage opportunities allow one to profit without initial capital. For instance, if a friend lends you 1A interest-free for a year, and you use this 1A to purchase a one-year Treasury bond with a 4% annual interest rate, you can exploit your friendship to arbitrage 400 yuan—this represents a first-type arbitrage.
Second-type arbitrage opportunities enable immediate profits without incurring any costs at maturity. For example, a stamp enthusiast offers to sell you a valuable stamp for 1,000 yuan, and shortly after, another collector is willing to buy the same stamp from you for 1,200 yuan, paying a deposit upfront. This creates a second-type arbitrage opportunity—buying low and selling high.
Notably, the emphasized arbitrage opportunities mainly pertain to those in the capital market. Typically, arbitrage opportunities arise when the "law of one price" is violated, especially with the introduction of derivative financial instruments such as futures, options, and swaps. These instruments can be used to lock in prices for some risk assets. If prices of corresponding securities in the spot market are deemed unreasonable, arbitrage opportunities arise.
It's essential to note that arbitrage is an operational behavior, and its success is heavily influenced by market completeness. Only in highly liquid markets, where assets can be quickly bought and sold, can arbitrage be performed whenever opportunities arise, leading to their rapid elimination.
In the sports betting market, where we deal with odds instead of physical items, we primarily focus on second-type arbitrage opportunities, collectively referred to as ARB. Finding a well-functioning market with significant odds fluctuations that allows for free trading (BACK OR LAY) is crucial for arbitrage to be possible. Currently, there are many such markets, with BETFAIR being a notable example, while in the United States, operations are mainly conducted through BETBUG.
It's worth mentioning that the following discussion is based on the BETFAIR market. Taking a simple example from yesterday's league cup—Metalurgs Liepaja v Schalke04—we consider the halftime odds on BETFAIR. If Schalke04 is leading by one goal towards the end of the first half, any attack by the home team at this point can cause odds fluctuations (increasing the odds for the away team to win the first half, fluctuating between 1.03 and 1.05). As an arbitrageur, one can almost simultaneously sell at 1.03 odds and buy at 1.05 odds. Assuming an initial investment of 300 units, and if the arbitrage is completed before the attack occurs, selling the Schalke04 first-half win at 1.03 and immediately buying at 1.05 could yield a profit of 200 units.
This is just one example of arbitrage resulting from odds fluctuations. Profits can accumulate through repeated executions. Some may wonder if these "sure-win" arbitrage opportunities are all based on Schalke04 winning the first half. What if the home team equalizes before halftime? This concern relates to a more profound issue of capital allocation. When selling at 1.03 with a 300-unit investment, one does not have to fully arbitrage. For instance, instead of buying 1A at 1.05, you could buy 9B, making the profit 150 for Schalke04 winning the first half and 700 if they do not. The key question is how to scientifically allocate in such scenarios, involving complex mathematical theories. Experienced arbitrageurs can operate based on intuition, and further discussion on this is beyond the scope here.
It's also possible to question how to ensure successful trades in the BETFAIR market, referring to "almost simultaneous" and latency-free transactions. First, the market must be sufficiently active, and specialized software support is required. Many professional players in Europe and the United States have developed direct connections to BETFAIR's servers through APIs (Application Programming Interface), enabling timely trades. However, this is a topic for another time.
2. **Hedge Fund**
The term "Hedge Fund," also known as a hedge fund or a hedge, often brings to mind figures like Soros, who gained notoriety for their strategies during the Asian financial crisis. Over decades, hedge funds have evolved and lost their initial risk-hedging essence, with the title "Hedge Fund" becoming somewhat misleading.
Today's hedge funds are a form of private investment fund that engages in securities trading. Through significant capital interventions, often using leverage effects, they magnify factors influencing market supply indefinitely. By using various information to create price fluctuations, they leverage price differentials to profit—a "secret weapon" of hedge funds.
Since hedge funds bet on both rising and falling markets simultaneously, most of their investment risks are hedged, often resulting in absolute returns. Additionally, as they are not required to disclose their investment direction and amounts publicly, they have operational advantages over open-ended mutual funds. However, specific details of how hedge funds operate in conventional financial markets are known to very few.
The reason is simple—successful individuals in the investment market have a philosophy that remains unchanged throughout their lives, and they seldom share it with others. Hedge funds operate in a realm inaccessible to ordinary people, serving only the wealthy. From the perspective of investors, it is a club—a club for a select few. Hedge funds are like traditional Chinese medicine; they can heal, but the reasons why are often unclear. Hedge funds can make money, but they may not be able to explain why. The difference lies in this: traditional Chinese medicine cannot explain, while hedge funds are not allowed to explain. |
|
Post time 30-1-2024 07:19:21
Post time 5-2-2024 13:50:37