LATENCY ARBITRAGE TRADING


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Latency Arbitrage is an imperative idea while talking about High Frequency Trading, and alludes to the way that diverse individuals and firms get advertising information at various circumstances. These time contrasts, known as latencies, might be as little as a billionth of a nanosecond, yet in the realm of rapid trading, such contrasts can be significant. So vital, truth be told, that trading firms pay loads of cash to be found nearer to exchanges’ servers– each foot nearer spares one nanosecond. Latency arbitrage happens when high frequency trading algorithms make trades a brief instant before a contending trader and after that exchange the stock seconds after the fact for a little benefit.

What is Latency Arbitrage?

This is a typical term in the realm of high frequency trading, and for the most part alludes to the possibility that organizations don’t all get a similar data about traded on an open market stocks at the very same minute in time. Some get it sooner and some later, and the distinction is known as latency. Some trading firms spend fortunes to guarantee they get the information to start with, and after that benefit from it by “latency arbitrage”. Each foot nearer you are to the trade server spares you one nanosecond. Also, they get it by basically paying the exchanges for the rights to co-situate with the trade servers. There’s likewise a section two: they permit the crude information from the exchanges that goes into the national value citation frameworks. Bottom line: they’re getting vital estimating data before the market on the loose.

How does that assistance make arbitrage preambles?

Here’s one case. A major organization is in the market to purchase a major request of a given stock. It will have algorithms execute the exchange gradually, attempting to get the best value… you know, it will take whatever’s accessible at, say, $11.20 per share, and afterward what’s accessible at $11.51, and so on. This is the place the “latency arbitrage” can come in. A HFT can see that the calculation is in the market, and basically purchase up all the accessible shares at $11.20 a moment before the foundation does. Presently the establishments calculation proceeds onward, and searches for shares at $11.51 The HFT offers all the stock it just purchased at $11.20, winning a totally hazard free penny a share, around 0.31$ correctly in pick up. Sounds little, yet gauges are that practices like this are including an excessive number of millions of dollars for every trading day, and a few billion every year. Latency arbitrage in the middle of 2 forex brokers is additionally exceptionally normal, Example there are Two forex brokers one is saxo-bank one of the biggest European banks, another is Alpari-A Russian retail intermediary, both these brokers are citing the cost of EUR/USD at 1.1007 and 1.1002, so there is basically a little crevice of 0.0005 and Saxo bank is speedier due its institutional structure.

Along these lines, a latency calculation construct robot running in light of devoted servers can without much of a stretch pick this talk and purchase on the slower merchant in expectation of getting 2-3 pips of benefits inside a small amount of second. In any case, nowadays numerous liquidity suppliers would just square your account and relinquish the greater part of your acquiring you attempt such methodology without educating them. The vast majority of the retail brokers are sponsored by liquidity suppliers who are huge banks, they never need to be tricked by their own procedure. We provide several forex trading managed accounts that work on this technique. Amid news releases these crevices move toward becoming 10-20 pips and accordingly latency trading is substantially more productive in an unpredictable market. A large portion of the brokers would utilize virtual merchants and other software’s to back off the execution of these trades.

 

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How Asset-Based Loans From Commercial Finance Companies Differ From Traditional Bank Loans

When it comes to the different types of business loans available in the marketplace, owners and entrepreneurs can be forgiven if they sometimes get a little confused. Borrowing money for your company isn’t as simple as just walking into a bank and saying you need a small business loan.

What will be the purpose of the loan? How and when will the loan be repaid? And what kind of collateral can be pledged to support the loan? These are just a few of the questions that lenders will ask in order to determine the potential creditworthiness of a business and the best type of loan for its situation.

Different types of business financing are offered by different lenders and structured to meet different financing needs. Understanding the main types of business loans will go a long way toward helping you decide the best place you should start your search for financing.

Banks vs. Asset-Based Lenders

A bank is usually the first place business owners go when they need to borrow money. After all, that’s mainly what banks do – loan money and provide other financial products and services like checking and savings accounts and merchant and treasury management services.

But not all businesses will qualify for a bank loan or line of credit. In particular, banks are hesitant to lend to new start-up companies that don’t have a history of profitability, to companies that are experiencing rapid growth, and to companies that may have experienced a loss in the recent past. Where can businesses like these turn to get the financing they need? There are several options, including borrowing money from family members and friends, selling equity to venture capitalists, obtaining mezzanine financing, or obtaining an asset-based loan.

Borrowing from family and friends is usually fraught with potential problems and complications, and has the potential to significantly damage close friendships and relationships. And the raising of venture capital or mezzanine financing can be time-consuming and expensive. Also, both of these options involve giving up equity in your company and perhaps even a controlling interest. Sometimes this equity can be substantial, which can end up being very costly in the long run.Asset-based lending (or ABL), however, is often an attractive financing alternative for companies that don’t qualify for a traditional bank loan or line of credit. To understand why, you need to understand the main differences between bank loans and ABL – their different structures and the different ways banks and asset-based lenders look at business lending.

Cash Flow vs. Balance Sheet Lending

Banks lend money based on cash flow, looking primarily at a business’ income statement to determine if it can generate sufficient cash flow in the future to service the debt. In this way, banks lend primarily based on what a business has done financially in the past, using this to gauge what it can realistically be expected to do in the future. It’s what we call “looking in the rearview mirror.”

In contrast, commercial finance asset-based lenders look at a business’ balance sheet and assets – primarily, its accounts receivable and inventory. They lend money based on the liquidity of the inventory and quality of the receivables, carefully evaluating the profile of the company’s debtors and their respective concentration levels. ABL lenders will also look to the future to see what the potential impact is to accounts receivable from projected sales. We call this “looking out the windshield.”

An example helps illustrate the difference: Suppose ABC Company has just landed a $12 million contract that will pay out in equal installments over the next year, resulting in $1 million of revenue per month. It will take 12 months for the full contract amount to show up on the company’s income statement and for a bank to recognize it as cash flow available to service debt. However, an asset-based lender would view this as receivables sitting on the balance sheet and consider lending against them, depending on the creditworthiness of the debtor company.

In this scenario, a bank might lend on the margin generated from the contract. At a 10 percent margin, for example, a bank lending at 3x margin might loan the business $300,000. Because it looks at the trailing cash flow stream, an asset-based lender could potentially loan the business much more money – perhaps up to 80 percent of the receivables, or $800,000.

The other main difference between bank loans and ABL is how banks and commercial finance asset-based lenders view the business’ assets. Banks usually only lend to businesses that can pledge hard assets as collateral – mainly real estate and equipment – hence, banks are sometimes referred to as “dirt lenders.” They prefer these assets because they are easier to control, monitor and identify. Commercial finance asset-based lenders, on the other hand, specialize in lending against assets with high velocity like inventory and accounts receivable. They are able to do so because they have the systems, knowledge, credit appetite and controls in place to monitor these assets.

Apples and Oranges

As you can see, traditional bank lending and asset-based lending are really two different animals that are structured, underwritten and priced in totally different ways. Therefore, comparing banks and asset-based lenders is kind of like comparing apples and oranges.

Unfortunately, many business owners (and even some bankers) don’t understand these key differences between bank loans and ABL. They try to compare them on an apples-to-apples basis, and wonder especially why ABL is so much “more expensive” than bank loans. The cost of ABL is higher than the cost of a bank loan due to the higher degree of risk involved in ABL and the fact that asset-based lenders have invested heavily in the systems and expertise required to monitor accounts receivable and manage collateral.For businesses that do not qualify for a traditional bank loan, the relevant comparison isn’t between ABL and a bank loan. Rather, it’s between ABL and one of the other financing options – friends and family, venture capital or mezzanine financing. Or, it might be between ABL and foregoing the opportunity.

For example, suppose XYZ Company has an opportunity for a $3 million sale, but it needs to borrow $1 million in order to fulfill the contract. The margin on the contract is 30 percent, resulting in a $900,000 profit. The company doesn’t qualify for a bank line of credit in this amount, but it can obtain an asset-based loan at a total cost of $200,000.

However, the owner tells his sales manager that he thinks the ABL is too expensive. “Expensive compared to what?” the sales manager asks him. “We can’t get a bank loan, so the alternative to ABL is not landing the contract. Are you saying it’s not worth paying $200,000 in order to earn $900,000?” In this instance, saying “no” to ABL would effectively cost the business $700,000 in profit.

Look at ABL in a Different Light

If you have shied away from pursuing an asset-based loan from a commercial finance company in the past because you thought it was too expensive, it’s time to look at ABL in a different light. If you can obtain a traditional bank loan or line of credit, then you should probably go ahead and get it. But if you can’t, make sure you compare ABL to your true alternatives.

When viewed in this light, an asset-based loan often becomes a very smart and cost-effective financing option.

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Understanding Financial Statements

Financial statements are formal records of the financial activities of a business, person, or other entity. It provides an overview of a business or person’s financial condition in both short and long term. It is a tool used to communicate financial information of an entity to those who wants to make decision and informed judgments about the entity’s financial position, results of operation and cash flows. There are four financial statements Balance Sheet, Income Statement, Statement of Cash Flows and Statement of changes in owner’s equity. These four financial statements have unique purpose but they are interrelated.

Income statement is also referred to as Statement of Earnings, or Profit and Loss Statement and Statement of Operations. Income statement indicates a company’s profitability during a specified time. It measures all revenue sources and deducts the expenses over a given period of time. There are major components of income statement:

Sales, which represents the gross revenue generated from sales of merchandise or rendering of services.

Cost of goods sold or sometimes called cost of sales are direct cost associated while selling the merchandise or providing the service. Gross Profit sometimes referred to as gross margin, is the difference between sales and cost of goods sold. Operating expenses, these are the selling, general and administrative expenses that are needed to run the business. Net income before taxes is the amount earned by the business before paying taxes. Income taxes are taxes paid by the business to local, state and federal government. Net income after taxes is the earnings of the business. It is computed by deducting the taxes from net income before taxes.Balance Sheet also referred to as Statement of Financial Position because it summarized the entity’s resources, obligations and owners claims as of a given point in time. It is often described as the snapshots of a company’s financial condition. Balance sheet has key components:

Assets represent the amount of resources owned by the entity. There are two kinds of assets, current and non current assets. Current assets are cash, stocks, inventories and short term investment that can be converted into cash in one year. Meanwhile non current assets are assets that will not be converted into cash within one year or during the course of business. Examples of non current assets are value of life insurance, copyrights, long term investments, land, buildings, leasehold improvements, equipment, machinery and vehicles. Liabilities are simply amounts owed to other company. Like assets, liabilities have two kind Current and non current liabilities. Current liabilities are obligations of the business of the business that are due and payable in one year. Non current liabilities are obligations of the business that aren’t due for at least one year. Owner’s equity which is also called net assets is the total amount invested by the stockholders plus the net income or profit of the business. They key components of owners equity includes common stock, paid in capital and retained earnings.

Statement of Owner’s Equity is also referred to as Statement of retained earnings. It is one of the basic financial statements. It explains the changes in companies retained earnings over the reporting period. It break downs changes affecting the accounts, such as profits and losses from operations, dividends paid, and any other items added and subtracted to retained earnings.

Statement of Cash Flows is a financial statement that shows how changes in balance sheet and income statement affect cash and cash equivalent Cash flow statement reflects business liquidity and solvency. It is divided into four categories: Net cash flows from operating the activities, net cash flow from investing activities, net cash flows from financing activities.Operating activities includes receipts for the sale of loans, debt, and equity in trading portfolios. It also includes receipts from sales of goods and services. Interest received from loans and dividends from equity securities. It also includes payments to supplier for goods and services, for salaries of employees and interest on loans.

Investing activities includes purchase of assets such as land, buildings, equipment and marketable securities. It also includes loans made to supplier or customers.

Financing activities includes inflow of cash from the investors and the outflows of cash from the shareholders such as payments of dividends and its taxes.

Financial statements are intended to be understandable by readers who have adequate knowledge of business and economic activities. It must be reliable, comparable, and relevant and show profitability. It should provide investor information to help them make a decision if they wished to invest some money into the company

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Alternative Financing and Application of Working Capital in Business

Alternative financing refers to non-traditional forms of supplying a business with sources of capital. Business owners usually turn to alternative financing when they do not have three years worth of gainful financial statements or do not have enough equity. There are many different sources to look to when a business needs additional funding.

One source is a private investor who contributes a significant amount of money without having to deal with a financial institution. However, the investor usually requests to be involved with business decisions and profits in return for his or her financial assistance.

A partner within the company is another source of alternative financing. Creating a partnership means an individual splits the cost of running the business alone, but must also be willing to allow the other person to take part in decisions and profits. Unlike dealing with a private investor, a partner would maintain long-term interest in the business and not be focused solely on a return.Alternative financing also includes different types of loans or leases. Securing a contract for to work from a company that a business owner has done business with before makes banks more liable to issue loans according to the expected profit. An individual can also lease vehicles and equipment. Most leasing agencies do not require as much profitable history as other financial institutions do, so it they are an easier way to build capital.

The application of working capital in business generally refers to the statement that tracks available funds for a business. Also called the Source and Application of Funds Statement or the Cash Flow Statement, the application of working capital tracks the sources of a business’s money and how that money was spent in a particular period of time. It consists of two sections: the Source and the Application.

The Source of the application of working capital shows the resources used to accumulate funds for a business. These sources can be loans, investments, and payments made to the business. The Application tracks how the money was spent. Common applications of working capital in business are payments for rentals or loans and the purchase of assets. In order to maintain a profit, a business’s sources must be greater than its applications of working capital.Business owners use the application of working capital to analyze the financial stability of their company. A steady decline in working capital usually means the owner needs to reevaluate the financial management of the business in order to avoid future losses and company failure. Investors, creditors, shareholders, and banks also look at the application of working capital to determine if a business is worth the risk of investing. A company that maintains steady working capital is more appealing because there is less risk of loss. Potential investors see that the business owner efficiently manages his or her finances.

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