How to take advantage of price anomalies

I don’t know about you, but when something’s going cheap, it makes me suspicious.

For my summer holiday this year, before I booked my car hire with the firm I usually use, I thought I’d take a quick look at a price-comparison site to see if I could save a few quid. To my surprise, I found the same deal for £200 less.

But I was suspicious.

Why was it so much cheaper?

Was my car actually going to be there?

Was I going to be stung for loads of extras on my arrival?

Turns out, not only did collecting the car go so smoothly that not one of my tired children had a meltdown in the car-hire office, but I also got upgraded from the bog-standard Citroen that I’d ordered to a Mercedes.

Result.

Those of us who believe in free markets, find it hard to understand price anomalies.

Surely, with modern communications systems and free markets, you don’t end up with different costs for exactly the same service or commodity?

Won’t all the prices even out in the end?

But price anomalies are all over the place.

Whether it’s biscuits on sale cheaper an the supermarket down the road … car hire cheaper at the next counter along at the airport … or the same financial product going at two different prices …

And a canny trader can use these little anomalies to buy and sell the same thing at the same time … and to pocket the price difference.

This is why successful traders and entrepreneurs, who know how to cash in on these events, are a very different breed from theorists, who just don’t believe the events even exist.

What is arbitrage? And why do so many people ignore this opportunity?

Here’s a story for you … An economist and a fund manager are walking down the road … (don’t worry, there isn’t going to be a punchline to this) …

They spot a £50 note in the gutter.

The economist says, “Don’t bother to pick it up. It’s a fake.”

His friend asks, “How do you know?”

“If it were genuine,” the economist replies, “then someone would have already picked it up.”

This story explains one reason why fund managers tend to be a lot wealthier than economics professors.

But the point I’m trying to make is that anomalies are more common that we might expect. And a LOT more common than theory would tell us that they are.

And while we may eye that £50 note, or £200 discount with suspicion – we’d be foolish not to take advantage of them.

This is why I’ve become a huge devotee of arbitrage trading – buying the same (or almost the same thing) at different prices. It allows us to profit from the differences – without leaving us exposed in the markets (because we’re bought and sold in the same, or similar, markets, our trades are always hedged.)

When moves happen in the markets, like they did on Wednesday night, this kind of trading helps to protect us from getting a nasty surprise.

If you’ve not yet tested out the power of a trading strategy that uses these techniques, then I strongly recommend that you take a look at one (or both) of Martin Carter’s highly successful MRP Strategy and MRP Energy. Between the two of them, he’s clocked up profits of 73.62% since April this year.

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