What Is Arbitrage?
Arbitrage is the simultaneous purchase and sale of the same or similar asset in different markets in order to profit from tiny differences in the asset’s listed price. It exploits short-lived variations in the price of identical or similar financial instruments in different markets or in different forms.
Arbitrage exists as a result of market inefficiencies, and it both exploits those inefficiencies and resolves them.
Key Takeaway Points:
Arbitrage is the simultaneous purchase and sale of an asset in different markets to exploit tiny differences in their prices.
Arbitrage trades are most commonly made in stocks, commodities, and currencies, but can be accomplished in with any asset.
Arbitrage takes advantage of the inevitable inefficiencies in markets.
By exploiting market inefficiencies, however, the act of arbitraging brings markets closer to efficiency. Source
Arbitrage knows no market limit as to where their financial masters will go to make their wild cat bets to be rich quick. And so it was in Texas in 2021 when it got hit by a vortex blizzard that wiped out its energy supply. Their wind turbines froze in place and their solar farms were covered with snow. Their grid went down causing desperate homeowners and industries to howl.
The power companies had to purchase from neighboring electrical grids to prevent indoor pipes from bursting. But in this instance there was a new problem in the mix – arbitrage traders bought up all the delivery contracts for excess supplies elsewhere. They then marked up their prices to whatever they dared and made windfalls. My guess is those contracts gave the purchases first right to the power, over homeowners.
A month later the consumers got burned from that outside electricity; some to the tune of $10,000 for the month. They found out that the cost increases had been passed on to them by law.
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As I recall in the above situation, Texas was the main area hit by that Arctic vortex. Starting this weekend it appears that about 90% of the country will be hit by the incoming Vortex as well as a second one a week behind it. I live in the Southeast US, near Pensacola, Florida. We are expecting 25 Degree Fahrenheit temperatures over three days. We see this every 20 years or so; nothing new.
But what is frightening to me is the appetite of the get rich finance boys from 2021 Texas. Is this is a new virgin gold rush in the making? Should home owners turn of their electric heaters for fear of an unpayable bill next month?
Lets talk more uncertainty, shall we? Is it possible that this vortex is both natural plus being steered by the Government? Isn’t it strange that it hits DC the hardest on Jan 6th, the same day of the 2024 vote certification? What if Democrats don’t have heavy coats and stay away for a few weeks, say until after Jan 21st, without a Speaker of the House? I can just hear Mr. Rogers ask “Can you say Civil War girls and boys?”
Then let’s recall together two months ago after two hurricanes “wiped out all funds of FEMA”. I hope Trump takes office with his personal checkbook in hand. We could be looking at a two month long grid down in areas across the country. Is this the big collapse moment?
It is possible that many of us will soon be walking around with our bowels locked open from chaos and fear. Perhaps we need to cross our fingers and keep an extra pair of underwear in the glove box like Mama taught us.
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