Yes, you would have to be trading at a prop firm with commissions of 1 cent per share or less. There is no way to realistically arb as a retail investor.
I don't think there will be many opportunities for doing arbitrage. The prop's and MM are far superior, and they are going to make the money... DEM
The arb opportunity exists, until people see and act on it, then as a result of everyone playing it - it disappears, so with everyone getting ready to jump on the arb angle right off the bat, seems discouraging - but will be fun to try when they finally come out. If SSFs turn out like options - higher commish, higher spreads (illiquidity), and stupid rules designed to keep traders - not members of the exchange - from making markets (for instance, cannot enter simultaneous buy and sell orders on the same contract), going to be tough going playing the SSFs vs. the underlying for the arb opportunity. Encouraging though, I read that at least one of the SSF markets will be .01 min. spread (as opposed to .05) - add the additional leverage and exemption from the uptick rule - if liquid enough, and you wanted to take a directional position, seems much more desirable to trade the SSF instead of the stock.
Being a French trader, I trade mostly on the Paris exchange, which is actually a SSF market. No comparison can be held versus the Nasdaq/Nyse markets. -All orders are processed on the same exchange (no ECN or regionals) -Lightning fast executions -No downtick rule, anyone can short -No god-knows-what DT rule -no specialist or execution problems It makes for an extremely fair and efficient market. The bad point is the cost of doing business with Euronext, as well as the 0.3% tax on stocks operations...which is why I'm switching to the awful US markets I hope the US SSF will come soon C2
Dear French buddy, what about the liquidity? When the SSF was first introduced in the Paris Market....did it remove liquidity from the regular stocks market? I mean, when the SSF gets introduced in the USA, will it remove the liquidity from NASDAQ....take cisco for an example. Lets say it trades around 80 million shares a day..... after the debut of the SSF, this number will decrease to what? and after how long? Since you have already experencied this before, i hope you could share with us. Thanks for your help. regards ARANHA
Dear Aranha, Out there, there arent two distinct markets for SSF and stocks. All orders are routed to Euronext. You can specify that you actually buy the stock, in which case you will need the cash amount available in your account, or just buy on "SRD". In this later case, you do not actually purchase the stock, you will have to wait until the end of the month.Of course, you can sell anytime, just like any future contract. "SRD" allows anyone, independently of his status or account size, to buy or short (with no uptick rule) with a 5:1 leverage. As a matter of liquidity, those actually purchasing stocks are the institutionals and long term investors, everyone else uses the "SRD". The volume of "SRD" orders is significantly higher than the "bought on cash" volume. So I guess it will be the same with the US markets. This would significantly reduce the volume on the actual stocks (by 60% or so I guess). I dont think this would cause any liquidity problems. Here, all orders type ("SRD" or cash) are routed to Euronext, so no arbitrage is necessary. Hope this helps and sorry for the bad english C2
Aranha, Its not likely to force the Nasdaq to change any rules... remember that the Nasdaq will have its own stock futures via the nasdaq-liffe exchange As for arb opportunites...how many do you see now between the cash and options? Exactly none...the electronic arb boys - Hull, Timberhill etc will get them along time before you see them
Dear Voltrader, thanks for sharing. So, from what you said, there will be TWO SSF markets in the US?or just one? What are those other firms like Chicago One? Will these other firms operate like ECNS? Regards ARANHA
Aranha. There'll be 3 maybe 4 exchanges listing stock futures: One Chicago which is a venture between all the Chicago exchanges Nasdaq-Liffe - a joint venture Island - will also list stock futures. I also believe that the new BOX exchange will do it but that may be a year away. Whether each exchange has the same contract multipliers or contracts or fungible products I don't know.