Statistical arbitrage is a strategy realized when substantial mathematical and computational statistics are applied in the market against two or more securities. Using data from various similar products, traders are able to identify distinctive differences in the pricing of similar products. They then take precautions into buying the under performing product which has a probability of doing well in the future. On the other hand, the product that is doing well is sold because of a statistical probability of under performing in the future.

Benefits of Statistical Arbitrage



1. Clears Stock
In the case of the under performing products, one gets to move his stock quickly to the traders who are using statistical arbitrage for future forecast. This leaves the trader who was probably making a loss in a better financial position than he would be if his stock wasn’t bought with the future promise of doing better.

2. Stops Future Loss
This applies to the company who is doing well in the present market. Since statistics show that his product is sure to decline in the near future, he is in a better position having sold his product while it is still doing well. This will reduce the immense risk of a decline in the future.

online arbitrage

3. Ensures Continuous Demand
This strategy is important to the market and all online traders involved. This is so because whether your stock is under performing or doing well, there is a place for you when statistical arbitrage is applied. For the under performing products, you sell to traders who have the foresight of an increase in prices of your product. For the over-performing product, you still get to sell when your product is at its best, therefore, everyone wins.

4. Risk-free profits
No matter how you look at it, statistical arbitrage in online trading is beneficial in this vastly digitized market. Most businesses have an online presence and this makes it easier to monitor price discrepancies in competitive products. Correctly carried out data comparison is an effective way of bringing in risk-free profits.

5. Available to Every Online Trader
One of the benefits of this strategy is that can be used by any trader with an online presence. For example, an online shoe seller could benefit if he applied this knowledge by comparing prices with other brands with a big difference in pricing. By effectively identifying opportunities to purchase under performing products he is placed in a position that ensures risk free profits.

arbitrage trading

6. Equalizes the Pricing Margins
When this strategy is actively applied, it has the potential of equalizing the different pricing values of similar products hence eliminating the vast market margins.

7. Low Loss Margins
Like any market strategy out there this strategy isn’t without a risk of loss. However, due to extensive research and the proven rise and fall of any market economic status, this strategy is bound to work. The realized low loss margins can also be recovered by applying the strategy to simultaneous securities so that the high making profit ones cover those which will suffer loss.
Bottom line

In this digital age, statistical arbitrage can be beneficial to anyone. Whether you own a fortune five hundred company whose profit margins border millions each year or whether you are an eBay trader. Everyone can benefit from this mathematically proven strategy.