Arbitrage is the practice of taking advantage of short term mispricing in co-integrated scrips. Stocks of most companies are listed on both the main exchanges- NSE and BSE. Hence there are often very short-term price discrepancies on the stock trading at both exchanges.
Strategies for NSE-BSE Arbitrage
Omnesys provides the following set of strategies for NSE-BSE arbitrage:
NFO Vs. BSE Cash Bidding
This is an Inter-Exchange Arbitrage Strategy that takes advantage of the price differential between the futures in one exchange and cash in another exchange. It is a participatory algo that will try to ensure that user mandate is maintained by bidding the first leg based on the user’s mandate.
BSE Cash Vs. NSE Cash Bidding
This is an Inter-exchange Strategy that takes advantage of the price differential that exists for the same scrip trading in different exchanges. Bidding strategy ensures that there is a possibility of user getting more than the mandate one has specified.
BSE Cash (IOC) Vs. NSE Cash (IOC)
This is an Inter-Exchange Strategy that takes the advantage of price differentials between the same scrips trading in different exchange. IOC orders ensure that users mandate is nearly maintained.
2L3L Bidding Strategy
This strategy allows the user to do a 2L or 3L trading in futures and/or options. Any combination of futures and/or options between two exchanges (NFO Vs. BFO) or any futures and/or options combination in same exchange.
Value Neutral Pairs
This strategy allows for arbitrage between two futures scrip of NFO and BFO segments (Inter-Exchange) (i.e. buy one future scrip and sell another future scrip). This strategy mensures that the value / quantity difference between the two scrips is as close as one another, thereby maintaining quantity/Value neutrality.
NEST GEMINI (Generic 2-Leg Spreader)
Nest Gemini is a GUI tool which allows user to create 2-Leg strategies between the same/different exchange/product from a set of pre-defined parameters within a short span of time with ZERO programming knowledge.
Profitability in NSE-BSE Arbitrage
Using latest technology, traders race for the last millisecond in cashing on a arbitrage opportunity. The ultra-low latency arbitrage systems are able to clock annualized returns above 20%. However, such opportunities are not trade-able for a non co-located system because it loses in race with low latency systems.
The retail can still trade very exceptional (2-3 in a month) arbitrage opportunities in futures of the same stock on NSE vs BSE.