Varieties of arbitration trading

The more traders, the more there are trading systems. The more systems, the more there are tools for them out there. Incorporating even minimal changes in the financial asset analysis into the fix api trading can radically change the vision of the entire market. For example, with the development of information technology, an enormous number of algorithmic systems have been developed.

Algorithmic systems are typically represented by trade robots or automated market tool fix apiforex software. In terms of development, this approach was fully automated with the type of trade as an arbitration that could not be applied to the foreign exchange market a few years ago. The trade algorithm has made this system a reality.

As you know, the fix api arbitration trading (http://www.investopedia.com/terms/a/arbitrage.asp) analyzes the course values of the same financial asset, but on different stock sites. That is, when the value of the same asset has distinct differences, based on the arbitration approach, the algorithm opens purchase transactions from that fix api broker, where the quotes are lower and sale transactions where the cost is higher, respectively. And when the quotes are returned to the normative values, the transactions are closed and several exchange rate points are recorded.

But this is only one approach towards arbitration trading. I highlight three key types of arbitration:

1. Fix api 2-leg Arbitrage

2. Latency Arbitrage

3. Triangle Arbitrage

The example and basics of the first one I named above. Key difference of the Fix api 2-leg Arbitrage is the opening of two positions toward exchange differences. This is also the principle that the automatic arbitration platform of Lock Arbitrage: – http://www.forexzzz.com/product/forex-zzz-lock-arbitrage/. As you can see from the description, through the use of known liquidity providers, it is possible to achieve a zero risk by selling via the financial protocol FIX.

Latency Arbitrage has a similar algorithm (which analyzes the value of the same currency pair between the fast and slow supplier of quotes), but only makes one deal. For example, when the cost of a currency differs from one site to another, the algorithm opens the transaction toward the values of a faster broker. This is the main problem with this method: such an algorithm is easy to identify and you need to know which broker is slow and which is fast.

Triangle Arbitrage allows you to make deals with one fix apiforex broker, but this algorithm involves opening three deals at the same time. To understand what the algorithm is about, let’s look at an example.

Three parties (a member or currencies) are required to perform such an operation.

We’ll call them player 1, Player 2, player 3.

Player 1 sells currency pair EUR/USD at the price of 1.0880.

Player 2 buys currency pair EUR/GBP for the price of 1.2300.

Player 3 buys GBP/USD for the price of 1.3400.

We see that the third player is buying at the different price from the market of 1.3382 (1.0880 * 1.2300). Thus, according to this arbitration strategy, it is necessary to perform transactions on the triangle and to enter into transactions with three parties according to the following algorithm:

  1. Purchasing EUR/USD of the first player on their own assets (for example, the minimum volume value of the fix apiforex): 100000 / 1.0880 = 91911.76 euros.
  2. Selling euros for pounds to the second player: 91911.76 / 1.2300 = 74425.01 pounds.
  3. Selling pounds to the third player: 74425.01 * 1.34 = 100131.51 dollars.

After these simple combinations, the trader is able to satisfy the three players’ requests and earn from it. The sum of the capital in seconds increased from 100 000 dollars to 100131.51. This is the whole point of triangular arbitration.

These three types of arbitration trading are entirely based on a algorithmic approach, because you need a commercial robot to perform a trade transaction. In the manual mode, this approach is not feasible.

One Reply to “Varieties of arbitration trading”

  1. Awesome write-up I must say. But I am more interested the liquidity providers of a thing.
    I’m someone that always get confused with all this FX and Api stuffs and I’m kinda lazy to start learning them all so I rely on software to get my dirty works done. from my understanding A liquidity provider connects many brokers and traders together, increasing the liquidity of the joint market. A higher liquidity is desirable for everyone, as it drives down the spread and thus the cost of trading. Knowing this and my desire to achieve a zero risk I often make use of FOREX ZZZ LOCK ARBITRAGE. I mean this thing is a life saver and often puts my mind at rest even though I’m a slugger I’ve always been in peace ever since I started making use of it because it literally makes everything automated and risk free.

Leave a Reply

Your email address will not be published. Required fields are marked *