Alina Khay

Alina Khay

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Alina Khay
Alina Khay
ETF Arbitrage Trading Strategy with Python
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ETF Arbitrage Trading Strategy with Python

Exchange-Traded Funds (ETFs) offer a unique opportunity for arbitrage due to the nature of their design and trading mechanisms.

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Alina Khay
Nov 30, 2023
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Alina Khay
Alina Khay
ETF Arbitrage Trading Strategy with Python
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Exchange-Traded Funds (ETFs) offer a unique opportunity for arbitrage due to the nature of their design and trading mechanisms. ETF arbitrage involves capitalizing on price discrepancies between an ETF and its underlying assets. This article will explore the theory behind ETF arbitrage and demonstrate how to implement a basic arbitrage strategy using Python.

The Theory Behind ETF Arbitrage

ETFs are designed to track the performance of an index, commodity, or a basket of assets. They trade on exchanges similar to stocks, allowing their prices to fluctuate throughout the trading day. However, the price of an ETF should, in theory, be closely aligned with the Net Asset Value (NAV) of its underlying assets. This is because the ETF structure allows for the continuous creation and redemption of shares, which helps maintain the market price near the ETF's NAV.

When the market price of an ETF deviates from its NAV, an arbitrage opportunity arises. This discrepancy is known as the "premium" or "d…

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