There are many
different ways to minimize the risks involved in trading in Stock market. Some
people devise the accurate strategies to trade effectively in the Stock market
and others use the tips from the financial advisory on various segments of
Stock market. In this article we will discuss a risk free method of trading,
that is Cash Futures Arbitrage.
The Cash Futures
arbitrage is practiced by buying and selling the same entity on cash and futures
market. In the Cash market the trader or the investor pays for the current
price of the stocks while buying and sell also at the current market price. In
case of the futures trading the Stocks are bought and sold at a future date.
The prices in context are also future prices. The trader is compelled to square
up his position at the end of the contract.
In the Cash Futures
Arbitrage generally the Stock is bought in the Cash market and sold in the
Futures market. Generally the price of the futures market is more than that of
cash market. Thus when the trader buys in the Cash market and sells in the
future market, he will lock a definite profit. The difference between the
futures price and cash market price is known as spread of the trade. Thus when
the price fluctuates and when the gap or spread decreases the trader can square
up his open positions and can lock in the profits. The trader can also
square up the positions when the contract expires. On the expiry the price of
the cash market and the futures market converges and thus can lead a definite
profit.
The above strategies
along with many other strategies are use by the technical analysts in the
advisory firm. Money Classic Research
is one such advisory firm which provides accurate stock market tips in the form of equity tips or Intraday trading tips.
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