Discussion in 'Commodity Futures' started by cutetolu, Apr 9, 2013.

  1. cutetolu


    Hey All,

    I have just joined a trading house as an intern and was trying to understand the concept of Arbitrage and how one knows if the Arb is open or close. I have heard terms like East West but cant make heads or tail of it?

    Can someone please give me an example on how to calculate if the arb is open for sending for eg Jet Fuel from AG to Europe.

    Thanks for your help.
  2. Where prices are high, the arb goes there.

    Where prices are low, the arb originates there.

    The cost to ship the product to the market in deficit must be less than the difference in prices between where the product was bought and where it was sold.

    If AG JF is $500/MT, NWE JF is $600/MT, and freight is $30/MT, the arb to NWE is open by a margin of $70/MT. Buy AG FOB, sell NWE CIF.
  3. slavduja


    Where does one gather the data on chartering or fixing a vessel (dirty tanker) ?
    Looking for different routes and costs per day, typical duration of the trip etc?
    Is this a popular arbitrage in the oil business?
  4. Singapore/Japan gasoline arb open by a nice margin.

  5. Please keep us posted on the trade.
  6. June Spore/Japan spread trading .14, July trading .28. Japan still premium.
  7. can you please describe "costs" associated just being in this business, from current cost of money to regulatory fee's business set up etc ?

    Is there really a arb given costs to be engaged ( ready to trade) in this particular market

    do these contracts just clear at normal exchange so all one needs is access to good broker ?
  8. Depends on your goal and what you want to trade. If you want to trade or have the option to trade the physical then your largest barrier to entry is going to be capital and securing lines of credit (LCs).

    If you want to be involved in the paper market only, you need access to global exchanges (CME, Tocom, Ice to be basic), and have OTC approval which requires $10mm liquid capital (for CME). If you're a physical player then you're defined as a 'bonafide hedger' in which case your capital requirements to trade OTC are only $1mm (for CME). You will need access to an OTC broker which is not hard.

    Cost of capital depends on your balance sheet and relationships. Many of the larger firms are securing 5-10 year multi-hundred million dollar notes paying 4.5-6.0% and getting well oversubscribed.

    The arbs are subject to global volatility and they go as quickly as they come, but yes they do exist and firms take advantage of them all the time. There are hundreds of global crudes and thousands of global products with different gravities, sulfurs, densities, etc. so the art is in the logistics, refining and blending. Each product in each hemisphere/region is also subject to different evaporation rates, volumes, etc. There are many plates to balance if you're trading physical.
  9. Interesting spread

    Is this based off Tocom gasoline / Singapore gasoline .

    be interested to know the contract specifications

    #10     May 27, 2013