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Comment by hotpotamus | Hacker News Reader

I suppose it isn't exactly finance 101, but one of the more fundamental rules of markets is that if you discover an opportunity for arbitrage, you never tell anyone and you exploit it as fast and hard as possible, because once it's publicly discovered, it will quickly be exploited until it's gone.

Therefore, no one is going to pitch a legit arbitrage opportunity to you.

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A hundred-dollar bill is lying on the ground. An economist walks past it. A friend asks: "Didn't you see the money there?" The economist replies: "I thought I saw something, but I must've imagined it. If there had been $100 on the ground, someone would've picked it up."

This analogy bothers me. It feels overly simplistic. To 'see' the bill--which the economist isn't even willing to believe can exist--in practice you need to observe and understand an increasingly convoluted financial world.

Said another way, to know whether someone is really pointing out a bill on the ground or just another scam you'd have to understand crypto and/or arbitrage to the same or better degree than them.

It's more like:

I know where you can find a $100 bill on the ground. I'm selling maps to it for $10.

Yeah, if someone is saying they are going to tell you where you can find a 100 dollar bill lying on the ground if you pay them $10s I would be suspicious.

My point is that humans are not wholly rational creatures. Due to that fact, there is always an opportunity for arbitrage. I never said it was easy though, it may well indeed require understanding of crypto and arbitrage, more than others.

Thanks for clarifying. IME the analogy comes out too often when someone is implying "stupid economists are overlooking obvious opportunity", yet their bill-on-the-ground is actually some convoluted, borderline scam.

>Therefore, no one is going to pitch a legit arbitrage opportunity to you.

I once wrote a quick and dirty arbitrage tool for Magic: the Gathering cards (stores publish price lists they will both buy and sell at). It really did work but (of course) it quickly caused a lot of the best arbs available on the market to go away.

Eventually the store owners themselves paid me to tell them if they ever had arbitrage opportunities for their own stores (to avoid accidental mispricing versus competitors) and the whole thing sort of went away but we absolutely DID pitch a legit arbitrage opportunity to people that people paid us for (and, in fact, still pay for today).

A super old test version of the free version of the tool is here: https://mtgpricer-uat.appspot.com/arbitrageTool I doubt it actually works any more though.

There’s probably something to be said for not buying a Ferrari first chance you get either. Smart thing to do is behave like you won the lottery. Lawyer up, spend your money on semi invisible things like paying down debt.

Once you’re successful everyone starts asking questions.

Apart from being financial advice, that has nothing to do.

> you never tell anyone and you exploit it as fast and hard as possible

How do you tell someone you found a get rich quick scheme without telling them you found a get rich quick scheme? Conspicuous consumption. I’m not talking about your neighbors wondering what’s up, I’m talking about your industrial peers connecting the dots and stalking you to figure out what’s up.

You are missing the point. The reason not to tell anyone is there is limited money to be made from arbitage. If someone else finds it they make the money instead of you.

Not telling people you struck gold might be great life advice, but other people knowing you are rich, in and of itself, wont affect the arbitarge opportunity.

> The reason not to tell anyone is there is limited money to be made from arbitage.

>> I’m talking about your industrial peers connecting the dots and stalking you to figure out what’s up.

I'm well aware. Perhaps you need to recalibrate your opinion of other people.

But I don't understand this:

> How do you tell someone you found a get rich quick scheme without telling them you found a get rich quick scheme?

Why even tell anyone at all? There's no need to buy anything physical, just save it up and spend it on a market ETF for example.

In this case, taking off a couple hundred grand and buying a Ferrari (rather than leaving in Celsius) would have been the smart move. At least you’d hold the keys to the Ferrari.

Heh, fair enough. There's a whole chess game with these sorts of things. I think it's probably very good advice to try to take a little money out of any investment before adding more to it, but it's also documented that con artists and pyramid schemes will sacrifice part of their take to maintain the illusion. Some investors get to take money out, so that the rest of the marks think they are going to get the same treatment. Or with a confidence scheme you might make a little money in step 1 and 2 and then in step 3 their phones are disconnected and they have skipped town.

[Edit] It does piss me off though how common the conceit is, "Well if I'd held my AAPL stock until last year I'd be a millionaire". That's not how investments work. You don't let the money ride forever on one bet. You sell it bit by bit to balance your portfolio. Nobody responsible in your life would let that go without energetic commentary about what a bad idea it is.

There are a lot of 'soft' arbitrage opportunities out there, such as risk arbitrage or merger arbitrage. You may not have 100% certainty of a deal closing, but can still profit over hundreds of events.

Most 'pure' arbs are exploited, but many still exist. They often require capital, expertise, and experience.

There are also sort of structural arbs, like for ETF funds (baskets in/out).

Precisely, which require significant upfront investment/expertise in a consolidated space

And the risk vs return is baked into the trade setup and fairly bounded.

> Most 'pure' arbs are exploited, but many still exist. They often require capital, expertise, and experience.

Not really.

Usually it is a higher tolerance for risk combined with not telling the customer how much risk they actually are taking.

It is all good until it is not, and by then it is too late

Alameda Research made billions arbitraging wide spreads in Asian bitcoin exchanges relative to the rest of the world. Required working with local banks to solve logistics around wire transfers and such.

Obviously a run of the mill crypto ponzi offering 30% interest or something will eventually collapse.

Difficult to balance incentives when it comes to traditional finance offerings such as structured products or an actively managed investment vehicle.

As you point out, customers struggle in evaluating risk

What a fitting username!

; )

> They often require capital, expertise, and experience.

I would tend to classify that as someone offering you work/a partnership rather than an arbitrage.

>Therefore, no one is going to pitch a legit arbitrage opportunity to you.

I'm feeling parallels to "How to get rich quick" or "Make $5000 a week from your home" pay-per-click sites from 20 years ago.

I think the lesson here is always be wary of easy money. If it seems too good to be true, it probably is.

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