Arbitrage Opportunities in Spread Trading of Gold Or Silver in Multi Commodity Exchange, India

Abstract

Gold and silver are traded in all major commodity exchanges. Different contracts of these underlying assets are traded for different expiry dates in the exchange traded commodity derivatives. Arbitrage opportunities are observed in the price movement of different contracts of the same underlying asset of same quantity expiring in the same month in the same exchange (Multi Commodity Exchange, India). The swing in the difference in the price is the advantage for entry and exit of the contracts in both the legs simultaneously. The study period is taken as Jan – Mar 2014 and Jan – April 2014 for Gold and Silver respectively. The analysis reveals a wide range in this difference make the traders to utilize the opportunity and enjoy the price difference at different point of time before the expiry date. The study reveals though Gold exhibits the wide range in the price differentials, Silver is not having that advantage for the traders. Traders have to identify the pair of the same underlying asset expiring in the same month in the same exchange through correlation techniques.