I think you are misinformed about arbitrage. Arbitrage involves taking advantage of a price difference between two different markets. In the US for equities, there is a national best bid and offer which means that the prices stay in line. (Also see: http://en.wikipedia.org/wiki/National_best_bid_and_offer)
If someone in the US first wants to sell a stock for as low as $95 (places a resting ask order at $95), and then someone else comes in and is willing to buy the stock for up to $105 (places a bid at $105), their orders will match, and the transaction will occur at $95. They won't just sit around waiting for some arbitrageur to come around.
Let's say there is an arbitrage between an index fund etf and its component companies such that you can buy all the components for $99, and sell the etf for $100. In this case who is the poor real market participant who gets screwed by the arbitraguer? If the "real market participant" got his order filled, he will be happy.
"Today the number of market participants & electronic transactions make trades near perfect; The utility of arbitrage trades vanished almost completely."
I think you are confusing cause and effect. The reason why the markets are indeed much more efficient these days is because of the existants of many more people engaged in arbitrage. This is something you should be happy about. Those algoritms that pick up the scraps significantly decrease the cost of investing for everyday people huge amounts of invested pension and retirement fund wealth.
If someone in the US first wants to sell a stock for as low as $95 (places a resting ask order at $95), and then someone else comes in and is willing to buy the stock for up to $105 (places a bid at $105), their orders will match, and the transaction will occur at $95. They won't just sit around waiting for some arbitrageur to come around.
Let's say there is an arbitrage between an index fund etf and its component companies such that you can buy all the components for $99, and sell the etf for $100. In this case who is the poor real market participant who gets screwed by the arbitraguer? If the "real market participant" got his order filled, he will be happy.
"Today the number of market participants & electronic transactions make trades near perfect; The utility of arbitrage trades vanished almost completely."
I think you are confusing cause and effect. The reason why the markets are indeed much more efficient these days is because of the existants of many more people engaged in arbitrage. This is something you should be happy about. Those algoritms that pick up the scraps significantly decrease the cost of investing for everyday people huge amounts of invested pension and retirement fund wealth.