I saw many people/books mentioned doing arbitrage by buy futures and selling index(the spot) or vice versa. But how to buy/sell the index? Buying the QQQ or the stocks? Is arbitrage only suitable for the pros? Anyone doing it at home? Some people said doing arbitrage required very cutting edge hardware and brokerage. Is the data feed from esignal enough? What broker can support such trading? Thank for any suggestion!
Index arbitrage in its simplest sense is buying/selling a basket of stocks to replicate and index and selling/buying that indices future. anyone can do it. With todays access for retail traders it is posisble (for example, you can set up and enter/execute a basket of stocks via IB in a split second via the basket function). A simple excel spreadsheet taking into account your costs and triggers is all you probably need. However, and it is a big however, the average person will be severely constrained by captial. In the US almost anytime the future is out of line to cash, it is quickly arbed back to fair value. You'll need to do size to make it worth your while.
In addition to doing arbitrage on the futures, you can also arbitrage any ETF by knowing the exact composition of each one and creating a basket or synthetic stock to mirror the ETF. In times when the market makes a sudden reversal, the ETF is often slower to catch up than the actual underlying indexes. However, the difference is usually only by fractions of a percent, so trading large size is required in order to make it profitable. The most liquid ETFs are the best ones to do this with. . .QQQ, SPY, DIA, SMH, BBH, etc.