To Establish opposite positions of the same financial asset in two or more markets at the same time. When there is variance in the prices of a financial asset in different markets, purchasing an under-valued financial asset and selling an overvalued financial asset simultaneously to obtaining profit from the spread.
Cross market arbitrage is a low-risk investment strategy with a stable return. It is a solid foundation for the asset pyramid tower and has become a major financial trading method in the international market.
The increasing speed of information circulation and computerized trading influence the prices of commodities in different markets to converge over time. However, the speed of convergence is variable due to market efficiency.
Price convergence keeps fluctuating within a reasonable spread between overpriced and underpriced contracts.
When the spread exceeds the normal range of volatility, arbitrageurs will buy low and sell high for profit.
Copper price of Shanghai/London Ratio
When ratio is near central axis, close the positions to take profit