What has Michael Douglas been selling on eBay?

Having spent way too much time watching TV news from Spain at the end of last week, waiting and waiting for the budget to be announced, I also spent way too much time watching Hollywood stars parade around San Sebastian at the film festival.

Two big Hollywood names at the Spanish festival were Richard Gere and Susan Sarandon, for the first European screening of their new movie, Arbitrage.

It’s an old-fashioned morality tale of a top-dog financier getting his comeuppance. But, as far as I’m concerned, no one can touch the ultimate villain of the world of arbitrage, Gordon Gekko from the film Wall St.

Gekko made his fortune as a pioneer of arbitrage, and this quote from the film really sums up what arbitrage means:

“I don’t throw darts at a board. I bet on sure things.”

Risk-free trading – what more could we all want?

So, what is arbitrage? And how do these top financiers manage to make their fortunes without taking risks?

And – more importantly – is there any way that ordinary Joes like you and me can do the same?

First, let’s get to grips with what arbitrage is …

In its most basic form, arbitrage is buying an item from one market, and selling it to another market at a different price. Let’s say that you buy old records from car-boot sales and sell them at a mark-up on eBay – that’s arbitrage.

Sports arbitrage is the same idea, but in this case, you’re finding two bookmakers with different prices, rather than the car-boot sale and eBay.

Of course, Gordon Gekko wasn’t flogging stuff on eBay.

What financial arbitrage does is it takes advantage of opportunities to trade what’s essentially the same asset in different ways.

For example, they’ll be looking for price differences between share prices and futures prices, or options, where the arbitrageur shorts the more expensive one and buys the cheaper one – profiting from the difference.

If you’re thinking “that’s all great for hedge funds, but what does this have to do with me?” I don’t blame you.

I used to think that arbitrage was just for the big boys.

However, I’m starting to realize that you don’t need to be as greedy or as powerful as Gordon Gekko to use arbitrage.

And nor do you need to spend any time at car-boot sales.

What can go wrong with arbitrage

The reason that financial arbitrage has tended to be the preserve of big players is that:

a) you need a lot of research to find these opportunities …

b) the price differences we’re talking about are usually very small, so you need big money to be able to make it work …

and c) you need to be confident that you’ll be able to buy and sell at the moment you want to, which means access to high-speed dealing.

So, how can we get access to these kind of risk-free trading opportunities?

There’s good news and bad news …

The good news is that I’ve recently uncovered a surprisingly simple way in which ordinary traders can take advantage of small price discrepancies, without hours of research, huge funds or high-speed trading.

This is the trading strategy I wrote to you about last week, looking for beta testers.

The bad news is that this trading style breaks a lot of rules. I’m not talking about the kind of rule-breaking that’s against the law – this is completely above board! I’m talking about the stuff that the trading manuals (and people like me) tell you that you should be doing: set trading times … clear profit targets … precision risk-reward ratios …

This strategy has stuck two fingers up at a lot of the things I believed about trading. Which is why I’m not going to recommend it until I’m 100% convinced that it really works – for anyone.

Hence the crack team of beta testers that I’m building.

(Please note that applications for testers have now closed, but you can still register your interest on the Priority List below – NB: all beta tester applicants already registered, so there’s no need to sign up again.)

Of course, if I decide that it’s not up to scratch, then it won’t be getting the Trader’s Bulletin recommendation.

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