Spread Betting Strategies
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Arbitrage
Although the spread betting companies are highly advanced and the market of spread betters is so deep that it is basically efficient, there are still some traders who go looking for arbitrage opportunities. This task is very difficult, as the opportunities will usually disappear in a matter of minutes or even seconds.
The idea behind arbitrage opportunities in the market is that because every spread betting company sets their own spreads, there may be a chance that one will set a different spread than the other. If this were to occur, it would be possible to profit from buying and selling the two trades against each other. Due to increased communication and collaboration between spread companies, this opportunity seldom arises.
To further understand the strategy of arbitrage spread betting, please read the following example:
Suppose that investor A wants to make a spread bet on stock X. The first spread betting company he looks at has the spread set at 110p-115p and the second company has the spread set at 100p-105p. Since the sell price in the higher spread is higher than the buy price in the lower spread, there is an arbitrage opportunity.
If the investor buys the lower spread at 105p and sells the higher spread at 110p, he has locked in a profit. No matter which direction the stock moves, he is guaranteed to be able to make a profit.
