ETF Intraday Trading | Share Market

Summary

This video unveils a secret trading strategy based on arbitrage, where traders can profit from price differences between the US Nasdaq index and its Indian counterpart, the Monhundred ETF. The video explains how the ETF, which mirrors the Nasdaq, can lag behind the index due to supply and demand imbalances, presenting opportunities for profit. The strategy involves using intraday trading and leverage to capture these price discrepancies, with low risk unless significant news impacts the market. The speaker encourages viewers to observe the strategy over time before engaging in it themselves.

Takeaways

• 😀 Arbitrage opportunities can be identified by observing price discrepancies between related markets, such as Nasdaq and its corresponding ETF.
• 😀 The US market's closing price affects Indian market trading, creating opportunities for price differences between Nasdaq and Indian ETFs like Monhundred.
• 😀 ETFs replicate the performance of their underlying index, so if Nasdaq rises, Monhundred ETF should also rise by a similar percentage.
• 😀 Demand and supply dynamics play a crucial role in ETF pricing; if there is higher selling pressure, the ETF's price may not immediately reflect the index's movement.
• 😀 The price of an ETF is expected to align with its intrinsic value over time, and fluctuations are primarily due to supply and demand in the market.
• 😀 Quick price movements, such as a 1% change within minutes, often present arbitrage opportunities that can be exploited for profit.
• 😀 Leveraged trading in ETFs can yield significant returns on small price movements, allowing for the use of lower capital with higher potential returns.
• 😀 Risk is relatively low in ETF arbitrage, as price movements are typically stable unless influenced by major news events like geopolitical crises or market shocks.
• 😀 A 1% profit on leveraged positions in ETF trades can result in meaningful returns, even with a smaller initial investment.
• 😀 Monitoring the trading behavior of ETFs, such as price changes and volume shifts, is essential to identifying entry points for arbitrage trades.
• 😀 It's recommended to observe ETF performance over time before making significant trades, as consistency in the strategy can lead to better decision-making.

Q & A

What is arbitrage, and how does it apply to trading ETFs like Monhundred?

Arbitrage refers to the practice of taking advantage of price differences between related assets. In the case of trading ETFs like Monhundred, which tracks the Nasdaq index, arbitrage opportunities arise when the price of the ETF does not exactly mirror the performance of the Nasdaq index, allowing traders to profit from the price discrepancy.

Why do the prices of ETFs like Monhundred not always match the underlying index, such as Nasdaq?

ETFs like Monhundred may not immediately match the underlying index due to the forces of supply and demand. The price of an ETF is influenced by how much people are willing to buy or sell it at any given time. If there is more selling pressure than buying, the ETF may trade at a lower price than its intrinsic value, creating an arbitrage opportunity.

How do you identify an arbitrage opportunity between Nasdaq and Monhundred ETF?

An arbitrage opportunity occurs when the price movement of the Monhundred ETF does not align with the performance of the Nasdaq index. For example, if Nasdaq increases by 1.47% but the ETF only rises by 0.62%, there is a discrepancy of about 0.8-0.9%. Traders can capitalize on this difference by buying the ETF at a lower price and waiting for it to adjust.

What role does leverage play in trading ETFs like Monhundred?

Leverage allows traders to control a larger position than they could with their available capital. In intraday trading, using leverage (like 4x or 5x) amplifies profits on smaller price movements. For example, with 5x leverage, a small price change in the ETF can result in a much higher profit, but it also increases the potential risk.

What risks are involved in trading ETFs like Monhundred using leverage?

While trading with leverage increases potential profits, it also amplifies the risk. If the price moves against the trader’s position, losses can be magnified. However, the risk in trading ETFs like Monhundred is relatively low unless there is major external news or geopolitical events that cause a drastic market movement.

What is the 'intrinsic value' of an ETF, and why is it important in this strategy?

The intrinsic value of an ETF refers to its true market value based on the performance of the underlying index, such as Nasdaq. In the context of this strategy, the ETF’s price will generally gravitate towards its intrinsic value over time, especially if there is a discrepancy caused by supply and demand forces. Traders aim to profit when the ETF price reaches this value.

What causes the price of an ETF to fluctuate, and how can traders take advantage of this?

The price of an ETF fluctuates based on supply and demand dynamics in the market. If there is more selling than buying, the price will decrease. Traders can take advantage of these fluctuations by identifying when an ETF is underpriced relative to the index and buying in anticipation of price correction.

How do limit orders help in executing the arbitrage strategy?

Limit orders allow traders to set a specific price at which they are willing to buy or sell an ETF. In the arbitrage strategy, limit orders are used to buy the ETF when its price is temporarily undervalued, providing traders with an opportunity to enter at a lower price and sell when the price increases toward its intrinsic value.

Is it safe to trade ETFs like Monhundred using this arbitrage strategy?

The strategy is generally low-risk, as ETFs like Monhundred tend to revert to their intrinsic value over time. However, external factors such as major geopolitical events or significant market news could disrupt this trend and lead to sudden price movements. Therefore, while the risk is lower, it’s important to stay informed about global events.

Can this arbitrage strategy work for other ETFs, or is it specific to Monhundred?

While this strategy is demonstrated using Monhundred, it can work for other ETFs that track major indices like Nasdaq or S&P 500. The key is identifying ETFs with high liquidity and strong correlation to their underlying indices, which allows for better execution of arbitrage opportunities.