What is the meaning of gold arbitrage? How to use gold for arbitrage?
What is the meaning of gold arbitrage?
The so-called gold futures arbitrage means that when there is a sufficient price difference between a certain futures contract in the gold futures market and a certain spot contract in the gold spot market, traders can make use of the difference between the gold futures and spot prices in the two markets to buy a lower price contract and sell the same number of higher price contracts at the same time, thus forming a hedging transaction . With the further narrowing of the price difference between the two contracts, when the traders think that the price difference tends to be reasonable, they close the position at the same time and lock in the income.
As for gold traders in Chinese mainland, the so-called Golden futures arbitrage transaction means the difference between the two futures markets in the Shanghai futures exchange and Shanghai gold exchange, and the establishment of opposite trading positions for arbitrage. When the spread income of two futures contracts is greater than the arbitrage cost of the two contracts, it provides arbitrage opportunities.
How to use gold for arbitrage?
The Shanghai futures exchange and the Shanghai gold exchange are the statutory places for Chinese mainland to carry out gold futures and spot gold futures (also have quasi futures contracts and postponed deliveries). The sufficient price difference between the gold futures contracts and spot contracts provided by the two exchanges has brought certain possibility to carry out the current arbitrage transaction. In the actual gold futures arbitrage operation, the first problem to be solved by traders is to choose the appropriate contract to participate in the arbitrage, and then to judge whether a specific spread really has arbitrage opportunities.
In Shanghai gold exchange, there are five main trading methods of spot gold, which are full trading, Au (T + 5) trading, delayed settlement Au (T + D) trading, short and medium term spot Au (T + X, X ≤ 90) contract trading within three months and delayed settlement Au (t + n). Among the five trading methods, the last four are similar, and the last one has the lowest transaction cost, which is more suitable for futures arbitrage.
If we examine Au (T + n) carefully, it changes the practice of charging 0.2 ‰ of deferred compensation fee per day for Au (T + D) transactions. Au (T + n) can pay 1% of deferred compensation fee on the last trading day of each month, and the overdue fee is 0. The improved Au (T + n) can be divided into Au (T + N1) transaction and Au (T + N2) transaction according to the date of delay fee. N1 refers to the payment of delay fee on the last trading day of odd months, and N2 refers to the payment of delay fee on the last trading day of even months.
The following three conditions should be considered when choosing the spot contract for gold spot arbitrage.
First, whether there is a hedging and closing mechanism, that is, we can open reverse trading contracts by short selling to hedge and close out the existing trading contracts, which will be more convenient to operate.
Second, the time period between the transaction and the settlement should be as long as possible without too many restrictions, which provides conditions for long-term arbitrage.
Third, the liquidity of contracts is strong, which is characterized by active trading and large trading volume.
Taking these three conditions into account, we can see that although Au (T + n) trading also has many advantages of Au (T + D) trading, the trading volume of Au (T + n) trading is relatively small, which makes it less liquid and therefore brings higher risks. Therefore, the theory of delay in settlement Au (T+D) should be used as a spot commodity for Chinese mainland traders to carry out the gold futures arbitrage.
A point has been mentioned above: two key steps should be taken to find arbitrage opportunities. Next, we will introduce how to complete these two steps in the Chinese mainland gold market.
The first step is to judge whether the price difference exists and whether the existing price difference can make profits.
Figure 7-1 shows the price trend and spread change of gold spot Au (T + D) trading price of Shanghai Gold Exchange and gold futures au0806 contract price of Shanghai Futures Exchange from January 9, 2008 to April 25, 2008.
It can be seen from Figure 7-1 that during this period, the price trend of gold futures au0806 contract and spot Au (T + D) gradually changed from large price difference to basically disappeared price difference, and then to small price difference flash. With the maturity of the market and the improvement of the market structure, the price difference between the spot contract of Shanghai Gold Exchange and the spot contract of Shanghai Futures Exchange should be smaller and smaller.
Like the above chart trend, does it show that as long as there is a gold futures and cash spread, it will be able to carry out futures and cash arbitrage trading and make profits? Traders with a little common sense all know that the actual futures and cash arbitrage operation also needs to further accurately measure and estimate whether there is a spread between the theoretical price of futures and the actual price of futures market.
According to futures theory, the theoretical price of futures is equal to the spot price plus the cost of holding. The so-called position cost includes storage cost, insurance premium and interest. Therefore, the theoretical price of gold futures in Shanghai futures exchange market should be equal to the spot price of gold in Shanghai gold exchange plus a certain position cost. As far as the gold (T + D) variety of Shanghai gold exchange is concerned, its main holding costs are capital use costs, holding expenses and deferred expenses.
The cost of capital use in the cost of position is actually the opportunity cost of a sum of capital, which accounts for the largest proportion in the cost of position. Generally, it is based on the six-month term loan interest rate of RMB. From January 9, 2008 to April 25, 2008, the actual value of the interest rate is 4.49%. The deferred fee, also known as the deferred compensation fee, is charged at the rate of 0.2 ‰ per day, that is, about 30 yuan per day should be paid for one hand of Au (T + D) contract, which is calculated from the second day of holding the position, and there is no deferred fee on the day of transaction. From the long-term time structure of the transaction, the impact of deferral on the cost of holding is relatively small. At the same time, the Shanghai Gold Exchange stipulates that the daily storage fee for the purchase right inventory is 0.6 yuan / kg.
By incorporating the above position cost into the calculation formula of the theoretical futures price, we can get the theoretical price of gold futures of Shanghai Futures Exchange (yuan / g) = spot price of Shanghai Gold Exchange × (1 + 4.49% t △ 180) + 0.0006 yuan (t is the number of days from the expiration date of the contract). Figure 7-2 shows the comparison between the theoretical price of gold futures calculated according to the above formula and the market price of the main contract au0806 of Shanghai Futures Exchange.
As can be seen from figure 7-2, after adopting the theoretical futures price considering the position cost, there is still a large arbitrage space between the actual futures contract price and the theoretical futures price. The second step is to buy the gold spot contract in the spot market and sell the gold futures contract in the futures market when the gold futures price is higher than the spot price in the market, resulting in unreasonable price difference; When the price difference is reduced to a reasonable range, sell the same amount of spot gold contract to close the position, and buy the same amount of futures contract to close the position in the futures market.
However, the obvious short-term arbitrage opportunity is easy to be used by the public, so that the law of one price can play a role. The arbitrage of the price difference between the spot of Shanghai Gold Exchange and the gold futures of Shanghai Futures Exchange should not last long, and its arbitrage space is difficult for the general retail investors to use, so we just give a brief introduction here. If you want to deeply understand the technology of futures arbitrage, you must deeply study financial econometrics and procedural trading, and use trading leverage to expand the profit margin. You can learn more through other books.