Information Arbitrage – What big hedge funds and banks don’t want you to know
these days, with so much information going around, it’s getting increasingly hard to find what’s really relevant and applicable, and what is complete horseshit.
the average content consumer can read up to 20 articles a day, and people who look for financial information read way more than that.
but how do you know what’s worth your scrolling time?
and even more importantly, how do you take something and apply it to your own life?
let’s figure out.
Needles in a Haystack
first things first, you have to find a trustworthy source, right?
now, who do you deem more trustworthy, a big financial website such as Bloomberg,
or a small independent site like johnkotrading?
most people would go with Bloomberg. At a certain point in time, I would, too.
however, while I was looking for my next financial move, I found something.
you see, when you own a website as big as, let’s say, investing.com, you own an asset that can provide various revenue sources.
the first is of course advertising income. The second is the power of diverting traffic to other websites.
but there’s one tiny detail about this site that people fail to mention.
remember, we are talking about a website that provides financial information. People are buying and selling in direct response to articles published on the website.
now, let’s say that you are the CEO of a certain company trying to raise capital.
and let’s say that you decided that the best course of action now is to sell some more shares of the company. Publishing an article on a big financial website means big revenue for your company. So, you send a few emails, talk to some friends of friends, and before you know it,
BOOM! You’re almost running out of shares to sell before you lose control of the company.
and that isn’t even the full scoop yet.
you see, the example above is not only something that happens every day, but also something with astounding implications about the markets.
Profits on demand
here’s another example:
you’re an investor. One who happens to write for a big financial website.
you happen to have $10K worth of shares in JNUG. But it isn’t performing like you want it to,
so you sell them for a small profit a month before they release an earnings report that you know is going to be positive for the company. A week after you sold your shares, you release an article titled: “Is this the end for JNUG?” that explains to people exactly why JNUG is crashing.
you wait for the price to drop and proceed to buy the same shares you sold two weeks ago, but for way less. Another two weeks after that, JNUG promptly release their very positive earnings report, about which you knew in advance, and you sit back and watch your trading account grow like mold on a week old sandwich.
this example is something that happens every single day, and big hedge funds don’t only know this, but are using it to manipulate the markets however they want to.
Power to the people
So how do you apply this information to yourself, as a person who isn’t writing for any financial website?
you reverse-engineer the news.
you correlate upcoming reports with articles about the market, and in doing so you let Bloomberg and Reuters do your job for you.
there are systems that automate this correlation process, and people who master them are the people turning the proverbial copper into gold. Of course that it takes not only time, but effort and usually some money, however, the end result is that you turn everything happening in the world to profit.
there are companies specializing in this field, called “information arbitrage”,
they’re usually small companies who try to stay under the radar,
but I found one that I could trust and it turned out to be the best decision of my life.
want to know more about information arbitrage and different trading strategies?