High-Frequency Trading and Latency Arbitrage › Key Parameters
Michael BrenndoerferJanuary 1, 20261 min read
Quantitative FinanceAll chapters Part 12 of 15Market Making and High-Frequency Trading
High-Frequency Trading and Latency Arbitrage › Key ParametersOne section · Sections in this chapter6 / 18 ↓
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The key parameters for ETF arbitrage are:
- etf_price: Current ETF market price (dollars per share), compared to NAV to identify premium or discount conditions.
- nav: Net asset value per ETF share (dollars per share), representing the theoretical fair value based on underlying holdings and serving as the benchmark for arbitrage calculations.
- shares_per_creation_unit: Number of shares in one creation/redemption unit (typically 50,000), the minimum size for direct creation/redemption with the fund issuer.
- creation_fee: Fixed fee charged by the ETF issuer for creation or redemption (dollars), representing administrative costs that must be overcome regardless of position size.
- basket_execution_cost_bps: Cost to trade the underlying basket of securities (basis points), including commissions and market impact from trading potentially hundreds of individual stocks.
- etf_execution_cost_bps: Cost to trade the ETF itself (basis points), typically lower than basket costs due to better liquidity concentration in a single instrument.