Zerodha....
- Thread starter bharath.mang
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- Tags bakwaas now cheapest brokerage nest nest plus new broker zerodha zerodha trader
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I think you haven't considered the pledging of shares... this would give higher returns compared to what you have calculated... 
In case of straight arbitrage, you would not need the margin for shorting futures... You would never find any future with such a premium though...
.. There are vultures sitting out there who would jump on any return higher than that of bank rates... ... Another thing I forgot to add, when you borrow shares, under SLB, the margin blocked is 110%...
.. so if you are borrowing 2lks of stock, you are blocked 2.2lks for this... and margin required to buy future is separate... So yes, in reverse arb though there are a lot of opportunities, margin blocked could be higher...
Cheers..
Lesson time... ...
1. Futures are at a premium to the stock... So RIL futures is say 800 and spot is 780... You realize that futures are trading at unusually high premium... What you do ???
But RIL stock and 780 and sell RIL futures at 800... This trade is an arbitrage trade as you carry no directional risk of stock going up or going down...
Ideally on the expiry day both stock and futures should be trading at the same price... What you do is, sell the stock and buy back the futures at the same time and pocket the Rs 20 which was the premium for futures...
How much was money required?? for setting up 1 lot of arb
Buy 250 shares equity( 1 lot = 250 for RIL) at 780 = Rs 1.95lks
Short 1 lot of RIL Futures= Margin for 1 lot, around 30k
Total = 2.25lks
Profit made= 20 x 250 = Rs 5000
Cost of trade(including brokerage, STT etc) = 250 to 2000 based on where you are trading, with Zerodha closer to 250 .. ...
This is a riskless trade and a return of almost 2% is crazy... The problem though is, you will never get such kind of opportunities... Every tom, dick and harry can get into such a trade, so market will never give you an opportunity to make riskless 2% for a month...what you could make is closer to 1%, which doesn't make sense coz you can almost make so much from a F.D today..
2. RIL stock is trading at Rs 800 and Futures is trading at Rs 780... Stock futures should ideally never be at a discount( exception is when you are expecting dividends)...
Ideally, you would sell RIL equity at 800 and buy futures and 780 and keep the position till expiry... This is called Reverse arb....But the problem is, if you keep a short equity position open, you have to deliver the equity on T+2, if you sold RIL on monday, you have to deliver the shares on Wed.... But, you don't have any shares to deliver....
This is where the exchange setup SLB(Stock lending and Borrowing) comes into place... Assume there is this X person, who has 1lk shares of RIL in his demat and is an investor... He is not bothered about what RIL share price is, because he is in RIL for long term... But if the shares are sitting in his Demat, he is not making any return out of it( other than dividend)... Here this peson X has the opportunity of lending RIL shares to people who want to reverse arb for an interest...
You were trying to do reverse arb, so what you do is... You borrow 250 shares from X and sell it in the market for Rs 800 and buy futures at Rs780... on the expiry day, you sell your futures and buy back the stock in the market... Once the stock is bought back you return it to person X and hence make this profit of Rs 20 by doing reverse arb...
Cost of trade would typically be the same as setting up an arb. The additional cost would be what X charges to lend you the shares...
Good thing here is, there are a lot of such opportunities that arise in the markets and because the junta doesn't have access to SLB, they keep coming often on various stocks....
Why can't the junta get into trading these opportunities?? This guy X, who is lending you shares today are all either HNI's or institutions... They won't lend you 250 shares and all.. They will talk in 10,000's and lakhs...
How much return can you make?? hmmm... sesa goa last year was giving crazy opportunities... But you could make 15% annualized risk free, which is pretty good for a lot of institutions... But that said, it all depends on whether you have lenders for those stocks in the market or not...
Hopefully didn't confuse you guys much...
Cheers..
... 1. Futures are at a premium to the stock... So RIL futures is say 800 and spot is 780... You realize that futures are trading at unusually high premium... What you do ???
But RIL stock and 780 and sell RIL futures at 800... This trade is an arbitrage trade as you carry no directional risk of stock going up or going down...
Ideally on the expiry day both stock and futures should be trading at the same price... What you do is, sell the stock and buy back the futures at the same time and pocket the Rs 20 which was the premium for futures...
How much was money required?? for setting up 1 lot of arb
Buy 250 shares equity( 1 lot = 250 for RIL) at 780 = Rs 1.95lks
Short 1 lot of RIL Futures= Margin for 1 lot, around 30k
Total = 2.25lks
Profit made= 20 x 250 = Rs 5000
Cost of trade(including brokerage, STT etc) = 250 to 2000 based on where you are trading, with Zerodha closer to 250 ..
...This is a riskless trade and a return of almost 2% is crazy... The problem though is, you will never get such kind of opportunities... Every tom, dick and harry can get into such a trade, so market will never give you an opportunity to make riskless 2% for a month...what you could make is closer to 1%, which doesn't make sense coz you can almost make so much from a F.D today..
2. RIL stock is trading at Rs 800 and Futures is trading at Rs 780... Stock futures should ideally never be at a discount( exception is when you are expecting dividends)...
Ideally, you would sell RIL equity at 800 and buy futures and 780 and keep the position till expiry... This is called Reverse arb....But the problem is, if you keep a short equity position open, you have to deliver the equity on T+2, if you sold RIL on monday, you have to deliver the shares on Wed.... But, you don't have any shares to deliver....
This is where the exchange setup SLB(Stock lending and Borrowing) comes into place... Assume there is this X person, who has 1lk shares of RIL in his demat and is an investor... He is not bothered about what RIL share price is, because he is in RIL for long term... But if the shares are sitting in his Demat, he is not making any return out of it( other than dividend)... Here this peson X has the opportunity of lending RIL shares to people who want to reverse arb for an interest...
You were trying to do reverse arb, so what you do is... You borrow 250 shares from X and sell it in the market for Rs 800 and buy futures at Rs780... on the expiry day, you sell your futures and buy back the stock in the market... Once the stock is bought back you return it to person X and hence make this profit of Rs 20 by doing reverse arb...
Cost of trade would typically be the same as setting up an arb. The additional cost would be what X charges to lend you the shares...
Good thing here is, there are a lot of such opportunities that arise in the markets and because the junta doesn't have access to SLB, they keep coming often on various stocks....
Why can't the junta get into trading these opportunities?? This guy X, who is lending you shares today are all either HNI's or institutions... They won't lend you 250 shares and all.. They will talk in 10,000's and lakhs...
How much return can you make?? hmmm... sesa goa last year was giving crazy opportunities... But you could make 15% annualized risk free, which is pretty good for a lot of institutions... But that said, it all depends on whether you have lenders for those stocks in the market or not...
Hopefully didn't confuse you guys much...
Cheers..
dear zerodha explaining this whole arbitrage stuff was gr8 but atleast provide margin against stocks like every other broker so we can also do such trade . as of now such trades have no relevence in zerodha thread may be it can be done with any other broker
In FD even though u can make close to 1 % but for that the money is gone for 3 years here the money is liquid and also 12 % plus , secondly if FD is broken then after penalty one only gets 6 % at the max in that too tax is deducted at source
though i do not sell same stocks futures with cash but nifty futures to hedge or sell options it would be good if you can provide margin against stocks
i was looking for an account with zerodha from almost 6 months but have given up
i guess u people not providing margins i ll have to renew my advance brokerage contract with religare only Mayank
because they do not provide margin against stock ,because for that there are system in place either which they dont have , or they dont want to do anything extra for the clients becuse they let you trade at such low cost any way 20 rs is not cheap per trade if you take into account the intrest paid on they extra margin one needs to provide
as of now zerodha is good for people who do not require any sort of margins other than intraday
as of now zerodha is good for people who do not require any sort of margins other than intraday
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