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Meaning / Definition of

Arbitrage House

Categories: Strategies,

A financial institution that engages in arbitrage. Such firms search for market inefficiencies and securities which they feel are mispriced, and then undertake trades which allow them to make riskless profits. Arbitrage opportunities are often quite difficult to detect, since mispricings can be very small. Also, arbitrage opportunities tend to disappear almost immediately since market forces act to reverse the opportunity. Because of these characteristics of arbitrage, many arbitrage houses are equipped with very sophisticated computer software and hardware to help them identify potential opportunities and act on them very quickly. Many arbitrage houses also develop complex software-driven mathematical models to find mispricings and market inefficiencies.

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Definition / Meaning of

Specialist

Categories: Brokerages, Business and Management,

A specialist or specialist unit is a member of a securities exchange responsible for maintaining a fair and orderly market in a specific security or securities on the exchange floor. Specialists execute market orders given to them by other members of the exchange known as floor brokers or sent to their post through an electronic routing system.Typically, a specialist acts both as agent and principal. As agent, the specialist handles limit orders for floor brokers in exchange for a portion of their commission. Those orders are maintained in an electronic record known as the limit order book, or specialist's book, until the stock is trading at the acceptable price. As principal, the specialist buys for his or her own account to help maintain a stable market in a security.For example, if the spread, or difference, between the bid and ask, or the highest price offered by a buyer and the lowest price asked by a seller, gets too wide, and trading in the security hits a lull, the specialist might buy, sell, or sell short shares to narrow the spread and stimulate trading.But because of restrictions the exchange puts on trading, a specialist is not permitted to buy a security when there is an unexecuted order for the same security at the same price in the limit order book.

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