Can an arbitrage trade be carried out between two exchanges?
Yes, an arbitrage trade can be carried out between two exchanges. However, it is only possible if the stocks are already held in the demat account.
- Assuming Reliance stock is trading at 2600 on NSE and 2604 on BSE, an intraday arbitrage trade can be executed.
- The strategy involves buying on NSE at 2600 and shorting on BSE at 2604.
- The goal is to sell on NSE when the price difference drops below 4 (2604 - 2600) and then buy back the shares on BSE.
- If the difference between NSE and BSE prices is less than 4, a profit is made.
- However, losses may be incurred if the difference is not less than 4.
If clients have Reliance shares in their demat account, they have the opportunity to sell them on the BSE at 2604 and promptly buy them on the NSE for 2600, effectively minimizing holding costs. It is important to note that initiating a new intraday sell and buy on separate exchanges is not allowed. This trading approach is commonly referred to as arbitrage, where the focus is solely on exploiting the price discrepancy between Reliance shares on the NSE and BSE, regardless of the direction of Reliance's price movement.