And professional investors love arbitrage investments. When an arbitrage deal is done correctly, the investor makes a quick profit to pad their bank account. They also do not require the same kind of long-suffering that most investments need. They do not have to sit on them for days, weeks, months, or even years in order to see a profits come out of that investment. And arbitrage investment has a quick turnaround, and best of all, it is also considered a risk-free investment. With all of these good things to say about arbitrage, you maybe wondering why doesn’t do this kind of investment? One of the main reasons may be that arbitrage also has strict compliance rules, and in some cases and investor may not be able to keep all of their profits. Many arbitrage deals come with strings attached in the form of an arbitrage rebate.
And arbitrage rebate is money that must be paid back to the federal government from the profits made on an arbitrage deal. Since many day traders do not take the profits that they make from an investment and put it directly in their bank account, this can be hard to track. Most investors take the profits from an investment and reinvested in the stock market to continue making more money. If they make money on an arbitrage deal from a tax exempt bond, and then turn around and invest that money into a taxable bond, then that investor is going to oh and arbitrage rebate back to the government. Since it can be extremely hard to track where each dollar comes from and goes to, many investors use an arbitrage compliance firm to help them make sure that they are keeping track of what money they will owe as a rebate to the government.
This puts a lot of pressure on the arbitrage compliance firm to make sure that they are doing their job correctly. The penalty for failing to pay a rebate to the government can be steep, which is why it is important to use a reliable and experienced arbitrage compliance firm. Arbitrage rebates are typically calculated and paid out every five years, so our relationship that you enter into with a compliance firm is going to be an extended one. Make sure that you are working with a company that you know will still be around in five years. The best way to determine this is to look backwards. How long has the company been in business? How long have their employees been working at that particular company? Natural turnover is normal and fine, but you want to make sure that a compliance firm has a healthy mix of young and old employees. You want to work with people who have been working with tax code for a while and know what they are doing. You want to company that can handle all of your compliance needs on their own so that you can focus your attention on your day job which is the stock market.