Well given the nose dive that occurred a few days ago, I think its safe to say to algo trading is alive (and well?). What I want to know is if there are any traders (no students with theory please) who actually are making it with arbitrage trades.
I'm talking real arbitrage, not trades on market dislocations or market "mis-valuations". The buy side computer programs really make eliminate all opportunities. Our grandfathers used to be able to exploit the differences in the market, but is there really that opportunity anymore in public equities?
I did see a pure arbitrage last summer within fixed-income... in fact, it lasted quite a while as well, which I couldn't believe. In terms of equities, I think latency arbitrage is pretty close, but goooood luck trying to be faster than the players on that field haha.
in public equities alone, unless you're a floor trader or specialist the short answer is no because tx costs would eat up any arb you found or the algos would sniff you out
across securities classes (ie arb btwn equities and futures/options or btwn bonds and swaps/FRAs), i know of 2 reputable prop shops (there are probably many more)that have multiple arb desks and know someone on a bond arb desk at one of them in NYC that does extremely well
Crossing clients is risk-free and happened all the time in Mortgages this summer. Occasionally in OTC FX or Rates you could find a pure arb opportunity but they usually only last for a few seconds.
This reminds me of Ali G asking Buzz Aldrin if the moon really exists, or if it is a conspiracy.
Yes, arbitrage really exists and I have done it.
What about for trading on a personal account?
In equities? Probably pretty tough.
most of the opportunities for "free money" that would be called arbitrage in a textbook involve either a) using a tremendous amount of balance sheet for a minimal return or b) are only riskless in a non-existent world where there is no margining and you dont have to mark your position to market every day.
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