Index Arbitrage

AAA

DEFINITION of 'Index Arbitrage'

An investment strategy that attempts to profit from the differences between actual and theoretical futures prices of the same stock index. This is done by simultaneously buying (or selling) a stock index future while selling (or buying) the stocks in that index.

INVESTOPEDIA EXPLAINS 'Index Arbitrage'

This is done with program trading. Using software that monitors both a stock index and futures contracts on the index, traders can be notified when there is a larger than normal gap.

RELATED TERMS
  1. Arbitrage

    The simultaneous purchase and sale of an asset in order to profit ...
  2. Index

    A statistical measure of change in an economy or a securities ...
  3. Futures

    A financial contract obligating the buyer to purchase an asset ...
  4. Program Trading

    Computerized trading used primarily by institutional investors ...
  5. Market Index

    An aggregate value produced by combining several stocks or other ...
  6. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
Related Articles
  1. Trading The Odds With Arbitrage
    Options & Futures

    Trading The Odds With Arbitrage

  2. Futures Fundamentals
    Insurance

    Futures Fundamentals

  3. Curious About Stock Index Futures? Read ...
    Options & Futures

    Curious About Stock Index Futures? Read ...

  4. Selling Premium As Small Caps Play Catch ...
    Options & Futures

    Selling Premium As Small Caps Play Catch ...

comments powered by Disqus
Hot Definitions
  1. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  2. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  3. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  4. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  5. Budget Deficit

    A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer ...
  6. Floating Exchange Rate

    A country's exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that ...
Trading Center