Is risk-free arbitrage trading really risk-free?

The principle of risk-free arbitrage is that the price of the same commodity (investment product) should be the same. When prices are different, there are arbitrage opportunities. When the price difference narrows, arbitrage has profits. When the price difference expands, arbitrage has floating losses.

Arbitrage Jun is a mask wholesaler. Due to the changes in the epidemic, the price of masks has fluctuated greatly. Because of the tight transportation capacity, the price differences in different places are also relatively large. Mr. Arbitrage wants to reduce the risk of mask wholesale. He wants to learn risk-free arbitrage trading and apply it to mask wholesale.

In March 2020, the COVID-19 epidemic broke out in Italy, and the price of medical masks gradually increased every day. The price of medical masks is relatively high, with an average price of 1 euro (about 10 yuan). There is also a new coronavirus epidemic in Shenzhen, and the average price of medical masks is 2 yuan. However, due to factors such as the relatively long time it takes to obtain EU certification, tight air transport capacity, and long shipping times, it is not easy to transport medical masks from Shenzhen to Italy for sale.

Mr. Arbitrage signed an agreement in Italy to sell 100,000 masks and deliver them after 2 months (Agreement 1), at a price of 0.9 euros (about 9 yuan). At the same time, an agreement was signed in Shenzhen to purchase 100,000 masks (Agreement 2), with delivery in 2 months at a price of 2 yuan.

In this way, Mr. Arbitrage can lock in the purchase price and sales price of medical masks before competitors.

Two months later, Italy has properly prevented and controlled the new crown epidemic, and the price of medical masks has dropped to 0.5 euros (about 5 yuan). The price of medical masks in Shenzhen is still 2 yuan.

Mr. Arbitrage signed an agreement in Italy to purchase 100,000 medical masks and deliver them immediately (Agreement 3) at a price of 0.5 euros (about 5 yuan). Deliver the goods to the buyer of Agreement 1. At the same time, an agreement was signed in Shenzhen to sell 100,000 medical masks (Agreement 4). The price was still 2 yuan, and the goods in Agreement 2 were handed over to the buyer in Agreement 4.

In this way, Mr. Arbitrage has completed the entire arbitrage transaction. The total investment is 100000*2=200000 yuan, and the total profit is 100000*(2-2)+100000*(9-5)=400000 yuan, net The profit rate is 400000/200000*100%=200%

Is this arbitrage transaction risky? If the Italian epidemic prevention and control is improper in two months and the price of medical masks rises even higher, there is a risk of loss. So the key to arbitrage trading is to predict when the spread will shrink or disappear. If the prediction is correct, there is no risk and vice versa.

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