A RISK FREE WAY FOR WEALTH CREATION

Simultaneous purchase and sale of an asset in

order to profit from a difference in the price is
called Arbitrage.
It is a trade that profits by exploiting price
differences of identical or similar financial
instruments, on different markets or in
different forms.
 DGCX provides SDMA setup for large corporate clients where a client can have API
connections with exchange and co-locate their server with DGCX for a better
connectivity and faster trade execution.
 Indian Rupee vs. US Dollar is a favorite arbitrage product at DGCX.
 INR/Dollar contract which is also known as DINR is traded on DGCX (Dubai Gold &
Commodities Exchange). This contract is a Future contract and has all the
specifications as any Exchange Traded Instrument.
 Same INR/Dollar contract is also traded in BSE, NSE and NDF Market (Non
Deliverable Forward Market) which is basically an OTC (Over the counter) market
based in Singapore and Hong Kong.
 In the strategy, an arbitrage is created between these two contracts available in
different markets.
 Say, on a particular day, rates in both the markets are as following:

Rate Converted Rate

DINR 174.13 57.1000

BSE/NSE/NDF 57.0000 57.0000

 In such a scenario, the trader would sell the contract in DGCX and buy the same in
another Markets, and thus locking a profit of 10 paisa.
 Now, if this difference comes down, the trader can reverse the position i.e. Buy in
DGCX and Sell in NDF and thus can square-off the position or he can simply wait
for the Expiry as Settlement would take place at RBI reference rate in both the
markets and thus can realize the locked profit on Expiry.
 Assuming margin of 5% in both the contracts, this locked difference translates into
a return of 1.75%.
 In practice, the trades would take place as and when an opportunity comes and
would be squared off at small profits.
 This would be done a number of times in a month so as to capture annualized
returns of 20 – 22 % net of expenses.
 Thus, the strategy is basically a near risk free arbitrage strategy.
 Both the contracts are cash-settled
 RBI reference rate is used for the settlement
 Settlement takes place on the day of the expiry of
DGCX contract
 Near risk free arbitrage strategy
 Position would be created as and when any
opportunity arises
 Use of in-house tools for entry and exit
 Near risk free arbitrage
 Easy to enter and exit
 Striking returns as compared to interest rates in International
Markets (1%-2%)
 Huge liquidity in both the markets so bigger funds can be easily
deployed
 Lesser margin requirements as a percentage of exposure
 As contracts are traded in the same currency, there is no risk of
currency fluctuation
 Margin Requirements - In case of higher volatility, there can
be MTM losses and profits in any of the market, therefore,
enough cushion is required.
 Liquidity Risk – Though, there is enough liquidity in both
the markets, but there might be a case when liquidity dries
up, in such situation, frequent churning would not be
possible.
 Execution Risk – The impact cost associated of price
movement while executing all the legs of the trades.
 In house developed software
 Automated trading algo’s to minimize execution errors
 Higher frequency of churning in case of automated
software: No chances to miss even a single opportunity
while everything in place.
 Low latency connectivity narrows theoretical and practical
difference of arbitrage
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Contact:
Rajesh Sharma : +918826200199
Pulkit Bansal : +919871225037