Reliance stock is trading on NSE at 1000 and on BSE at 1004, can I buy on NSE and sell on BSE to make a riskless arbitrage profit of Rs 4 per share?
You can do such an arbitrage trade for intraday, so you can buy on NSE at 1000 and sell on BSE at 1004, when the price difference comes lower than 4 (1004-1000) sell on NSE and buy back the shares on BSE. When you cover, if the difference between NSE and BSE prices is lesser than 4 you make profit if not losses. This is an arbitrage trade, because it doesn’t matter to you if reliance goes up or down, all you are bothered is about the price difference between Reliance on NSE and BSE.
You can also do such a trade if you already have stocks in your demat. So for example, if you held Reliance in your demat, you could sell it at 1004 on BSE and immediately buy it on NSE for 1000, this way reducing the cost of your holding.
What you cannot do is - delivery based, buying on NSE and Selling on BSE without holding the stock in your demat account. Assume you buy reliance stock on NSE at Rs 1000, the delivery of this stock will come to you only on Wednesday evening (T+2 day), whereas the stock you sold on BSE at 1004, you will have to give delivery of that to the exchange latest by wednesday morning (T+2). But until wednesday evening you will not have reliance shares, so on wednesday morning you will end up with short delivery and will be taken to auction which can have huge implications in terms of penalty, where you can lose much more than the Rs 4 arbitrage profit you were trying to put the trade for.
Yes it is possible to do on intraday basis.
Many people follow this as a separate strategy itself.
With high volumes and a price difference of even 1 rupee+, this could turn into a profit churning strategy, when the number of times you do this consecutively in a day is very high.
I have heard that even brokerages staff people (who do this type of activity continuously in a day) to make profits in this arbitrage strategy. Although I am not sure, if it is a rumour or truth. Its quite possible.
do cash future arbitrage on bse , it really works , i myself tried this
I have few doubts, Is it better to do in cash equity or equity futures? Incase of cover order we can only select the open position and press exit in that case it will square off in same exchange only?pls clarify Thanks in advance
Yes arbitrage is very much possible. There are many automated soft wares which are programmed to find out differences in a stock price in two different exchanges, expiry etc. There are many funds also available. buysellunlistedshares.com offers many such unique wealth creating ideas and opportunities.
Yes, but don’t do this manually. use a sebi approved algo software to run this.
1. Arbitrage is not An Intraday Trade (Cost Wise)
You are not allowed to buy and sell the same stock in different exchanges on the same day. This means if you buy stock XYZ today in NSE, then you are not allowed to sell stock XYZ in BSE the same day. If you do that, you may have penalty of short selling in the exchange you sold.
It means you can only do arbitrage for stocks that you have in your DP. If you have stock XYZ in your DP, you can sell the same in BSE and buy them in NSE as well to bag a profit but then you are not doing intraday trading and so you may be paying the brokerage of delivery to your broker though you are trading on the same day – time wise.
2. Last Traded Price is not the Price for Arbitrage
If you are seeing a price difference of few Rupees in both the exchanges does not always means there is an arbitrage. Take an example of Weizzmann Forex.
We see the price in BSE as 69.90 and in NSE as 74.90, which can be concluded as an arbitrage opportunity but there is no arbitrage opportunity. Let me explain to you why.
The big price number that you see is last traded price which means those price in both the exchange is the traded price and not the price at which you will be able to trade.
Your price would be either offer price or bid price. Let me explain offer price, bid price and last traded price first in simple terms.
- Offer price is the price that others are offering their shares at. So you can buy at the offer price.
- Bid price is the price that others are willing to buy shares at. So you can sell at the bid price.
- Last traded price is the price when offer price and bid price matched and the trade took place.
So if you see the offer price and bid price in both the exchanges they are
- Offer price in NSE is 74.90 for 48 shares.
- Bid price in BSE is 67.30 for 50 shares.
So if you execute the trade then your offer price should be 67.30 in BSE and Bid Price in NSE as 74.90 and that would mean you are buying high and selling low making a loss and not a profit arbitrage.
So arbitrage exists only if you have higher bid price and lower offer price in either of the exchanges.
3. Arbitrage Trades should never be Manual
As a retail investor we may be able to spot some arbitrage opportunities but if you try to key in those trades manually, the opportunity may be gone because there are so many big traders who have automated softwares running for spotting such arbitrages and execute those trades. If you think you can beat those programs spotting arbitrages, you are wrong.
On top of that you are trading with broker in between you and the exchange but large traders have direct access to exchange and so they don’t have broker in between, eating their profits and so they can spot arbitrages much earlier than us. By earlier I don’t mean time early but price early.
It does not mean that retail investor cannot trade in arbitrage and circuits are best opportunities for arbitrage where if you have stock in your DP and if it hits circuit in both the exchange, you can opt to buy in circuit where the pricing is low and once the buy is executed, you can sell your stock from DP in exchange where pricing is higher than you just purchased. I did the same in Fame India here quite some time back.
Avoid spotting arbitrage in low volume stocks because pair trade execution can be tough in them. If you have any question about arbitrage, you can ask them in comments below.
Yes u can do if u buy in volumes only u can earn.at least 5000 shares
can we buy and sell through Cover Order in arbitrage trading?
yeah you can if you are doing this for intraday.
very well explained
But how many times i can repeat my trades?
suppose i have 1000 shares of ICICI Bank in my demat account.
@ 9.30 AM. Price on NSE is 200 and BSE is 201. now i sell on bse and buy from nse.
@ 9.45 AM. Price on NSE is 201 and BSE is 202. again i sell on bse and buy from nse.
@ 10.30 AM. Price on NSE is 203 and BSE is 204. then can i repeat same trade number of times ?
yes i observed it has good price difference,but why BSE volumes are very less…does the order gets filled?
also post some of your favorite scrips.
Yes, VTN you are right, for arbitrage in intraday you need to do 4 trades.
2 trades in nse, 2 trades in bse.
Buy in nse and sell in bse - 1st set (you do this, when gap is large)
Sell in nse and buy in bse - 2nd set (These 2 are square off trades - you do this on same day when gap is narrow or no gap)
The difference in gap between 1st set and 2nd set is your profit.
Cover orders are market orders and so you dont have better control.
totally how many stocks traded on both exchanges …
Around 1600 stocks in NSE and 3350 stocks in BSE.
Arbitrage seems to be more complex than I thought. So I was under the assumption that in arbitrage one makes a profit out of the price difference for the same thing in two different markets. Now common sense would say, I buy at higher price of two exchanges and sell at the lower one, or vice versa. CAn anyone tell me the logic behind doing four trades ?
I have tried to explain here ariaz