Index Arbitrage

Topic

Index arbitrage is a trading strategy that attempts to profit from temporary price discrepancies between a stock index's future or exchange-traded fund (ETF) price and the combined price of its underlying component stocks. It is a subset of statistical arbitrage that typically relies on high-speed program trading to execute simultaneous buy and sell orders when prices diverge from their fair value. This process helps align the derivative and cash markets, ensuring efficient pricing across financial instruments.