You read it wrong
" but the catch here is that you have to cover both the positions before close of day and if the price difference has not reduced from Rs 5(2805-2800) to lesser before 3.20pm, you will end up losing money on the trade."
This is what he said.
You need to close your position only in same exchange
Don’t arbitrage before you learn basics of trading.
It is very advanced technique.
What nithin has explained is that if you spotted a arbitrage opportunity.
Say NSE 100 and BSE 110 -> so diff is 10 pts
Now you byy on NSE and Sell on BSE -> you opened two position.
Now when you square off both after sometime.
To make a profit this difference of 10 must reduce. The advantage is that such arbitrage chances are rare errors in price discovery and hence theorotically they must reduce to 0.
Now if price drops to 90 on both bse and nse
On NSE you booked loss of -10 and on BSE profit of 20 so total 10 profit
If price rises to 120
you book profit on NSE of 20 and loss on BSE of 10 = net 10 profit
You will be in loss if this diff of 10 increases to 20
Thank you buddy, that clears things to some extent. I will try reading more about it.
It just so happened that I was shorting and there was in the loss. And looking at BSE showed a price diff of 0.25 which was enough to cover my loss. So, a quick search and I decided to BUY my position on BSE.
Learning from experiences. Thankfully I didn’t lose too much.
Intraday done. Now, for Delivery, @nithin writes that:
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.
Can you tell me what are the outcomes of it? I hold 100 shares. The price on NSE is 101 whereas price on BSE is 102. Now if I sell on BSE and buy on NSE, I get a profit of Rs. 1 per share.
But there will be 2 CNC positions, right? So at the end of the day, my 100 units will be sold at 102 and another 100 will be bought at 101? Will they be adjusted to each other or a real debit and new delivery will take place? I guess the latter.
So, I will pay DP charges on these 100 which will get debited. And the cost of the stock in my hodings will reduce by Rs. 1 and come to 99?