Types of arbitration strategies and their specification

Most recently I set a goal for myself to deal with popular strategies of high-frequency trading. For several weeks I collected content and analyzed both different software and just strategies for speculative trading. And today I want to share with you my observations and opinions regarding arbitration fix api trading.

Arbitrage trading (http://www.investopedia.com/terms/a/arbitrage.asp) is a modern type of trading operations in the financial market, which consists of the selection of assets not on the basis of their historical movement, but on the difference of the current value on different stock exchanges.

My search was reduced to three different types of arbitrage trading:

  • Fix api Latency Arbitrage
  • Fix api 2-leg Arbitrage
  • Triangle Arbitrage.

 

Fix api Latency Arbitrage

This type of arbitrage trading consists of the analysis of the same financial asset on different stock exchanges or in different brokerage companies with the subsequent opening of a trading operation where quotes are received with a delay.

Example:

The trader already knows which one of the two fix api brokerage companies has more relevant quotes, and which one delivers them with a delay. The algorithm analyzes the same asset, let it be EUR / USD, and when the fast broker cost 1.0850, and of the slow one – 1.0840, the robot opens the purchases on the accounts of the second broker.

From the shortcomings I note the fact that such an algorithm is easy to identify and if you open an account with a poor-quality broker – this carries an increased risk for investment funds.

Fix api 2-leg Arbitrage

Similarly to the first type, this one analyzes the exchange differences on two sites, but it opens the deal for the first and second. This allows you to find two quality brokerage companies and make transactions in the direction of the spread between the price of the asset in different companies. There is already ready-made software that performs automatic analysis and conclusion of transactions: http://www.forexzzz.com/product/forex-zzz-lock-arbitrage/. This program allows you to choose the prime broker and adjust the work of your broker, which will indicate a fast and slow broker. If the exchange difference between two identical assets is more than a given parameter, the robot will open the transaction.

Example:

Take the data similar to the example above: the price of EUR / USD in the prime broker is 1.0850, and yours – 1.0840. Parameter of opening of the transaction – at achievement of 10 points of a difference. Thus, the robot will open a deal to buy from the second and sell to the first. When the exchange difference returns to the normative value of 2-3 points of difference, the robot will close the trading operation. Let’s assume the cost was 1.0875 for the first broker, and 1.0873 for the second. Transactions are closed with results – 25 points from the sale and +33 points from the purchase. Thus, this trading strategy has no risks, because there will always be profit in several points.

Triangle Arbitrage

This type of arbitrage strategy is based on the analysis and discovery of several operations at once. And if fix api Latency Arbitrage and fix api 2-leg Arbitrage everything is clear, then the specificity of this kind is more complicated, although it is easy to execute. In order to understand this, let’s go through a specific example.

Example:

The trader analyzes the market and finds some deviations in the prices that are now present on the market. Let’s model the situation.

Trader A has 10,000 dollars in its assets and is looking for the most profitable investment zone. Trader B sells EUR / USD at the price of 1.0780. Trader C buys the EURGBP currency pair at a price of 1.2200. Hence, the GBPUSD rate is 1.3151. However, trader C buys GBPUSD at a price of 1.3155. Trader A, watching this situation on the market, decides to “wedge” into this triangle and perform an operation with all the participants.

As a result, the arbitration triangle looks like this:

1. Trader A buys the EURUSD currency pair from trader B for its assets: 100000 / 1.0780 = 92764.37 euros.

2. Trader A sells euros for pounds to trader B: 92764.37 / 1.2200 = 76036.37 pounds.

3. Trader A sells a pound to trader C for 1.3152 dollars: 76036.37 * 1.3155 = 100025.84 $.

Thus, the trader for a fraction of a second made three trading transactions with a yield of 0.025%.

These three types of arbitration have the same goal, but are fundamentally different in their specification and the algorithm for completing trading operations. Knowledge of the functioning of each strategy will allow you to study the specification in more detail and adjust the algorithm to the comfortable conditions of fix api trading.

What if the broker restricts the possibility of algorithmic trading?

Brokerage companies during almost the whole history of the development of financial markets, played against traders, setting large commissions, marginal requirements and mark-ups on financial assets. Of course, with the development of the market, the approach of the trader to the analysis and forecast of the future movement of quotations was also brewed. Thus, trading strategies, methods of analyzing the movement of price bars, sledge models were created and today there are many trading robots that allow to act without risk in the financial market, as well as automatically perform trading operations. Most of such software are implemented in the MQL market – https://www.mql5.com/en/market.

However, brokerage houses here also find a number of restrictions. After all, there are those companies that directly play against their customers, in particular fix api traders, limiting their trading based on algorithmic systems. For when a robot demonstrates a stable and fast-growing profit – this is a direct loss of a poor-quality brokerage company. And I will even note the fact that this restriction may belong to large, as well as eminent fix api brokerage companies.

In order to avoid this, has been developed asoftware that “masks” the trade, which is so banned by brokerage companies, namely arbitrage trading. One such program is the manual trading module for arbitrage trading – http://forexzzz.com/en/product/manual-trading-add-on/

This software creates the opportunity to trade fix api arbitration strategy (for more details on arbitrage trading read here), but in manual trading mode. That is, all transactions placed on the brokerage company’s servers will be read as transactions opened by the trader “by hands”, and not by the trading robot, which allows to circumvent the bans of brokerage companies.

So, if the algorithm will determine the exchange rate difference between different quotes, then all transactions will be opened through auto-click.

The algorithm of this software is in combination with Lock Arbitrage:

  1. The algorithm analyzes a number of currency pairs for the presence of exchange rate differences;
  2. If there is this difference, which is more than a certain number of points, the program makes a decision to open a deal. For example, the difference was more than 7 points that were laid in the program, only then the trade on the market fix apiforex will be completed. All that is below this value will not be taken into account and ignored by the software;
  3. The difference is that the transactions are sent not directly from the robot, but open through the manual trading module using the logic of the auto-click operation;
  4. The results of transactions are also fixed in this trading mode.

The manual trading module is suitable for use in the trading platform fix api MT4 (for technical specifications of the terminal, see the official website), and it is a program similar to auto click. This is what makes it possible to hide the process of algotrading. And those broker companies where manual trading has more comfortable conditions, operations through this software will have better characteristics than through automatic opening and closing of trading orders.

Advantages of the software of the manual trading module:

  • Allows to circumvent the prohibitions of brokerage companies on the use of algorithmic methods in the process of trading;
  • Uses more favorable conditions for manual trading, while making transactions using an algorithmic approach;
  • Uses automatic orders to open and close trading operations through manual trading tools;
  • Allows to use this module with various automatic tools of MT4 trading terminal;
  • Easily configurable for arbitrage trading, in particular for fix api Lock Arbitrage.

Thus, in order to circumvent the prohibitions on the use of software, more software was created! Traders – these are the people who can find a way out from any situation and make their own trading process.

Using this software allows you to optimize the process of algorithmic trading and circumvent the bans on the part of the brokerage company.

cTrader connector. What is this, and why does a trader needs that?

It’s well known that the financial market development has also led to the emergence of a multitude of both brokerage and support services for trading. To date, a number of supporting trade platforms have already been established through the trade conduction, financial assets analysis and complex technical analysis.

Of course, every one has been working through the fix api MT4 platform. This is truly universal software that allows you to build complex predicted models, and to which there are a huge number of trade robots, scripts, and utilities. And of course, practically every broker uses this software free of charge.

However, in order to apply the arbitration strategy, this instrument may not be sufficient. And, given the fact that some brokers restrict the arbitrage fix api trading, one platform may not be sufficient. Moreover, for trading on different stock sites, it is necessary to know in which broker’s quotations are late and which one’s are received on time.

For this solution, a special connector has been developed that allows trading on cTrader, but through MT4: http://forexzzz.com/product/ctrader-connector-via-fix-api/

This software allows you to use both the standard MT4 accounts and cTrader account while working in the first program. That is, you can use this header to get all the indicators, experts, a trade robot designed for MT4, for trading in cTrader. This is really a unique development, because in a standard trading platform there is no way to connect the supporting software. And the connector, in turn, will allow you to create a gateway that will be used to ship all the deals to the cTrader through MT4 orders. The connector also trades throughfix api, which makes it possible to use delayed orders.

You can read about the MT4 and cTrader trade platform specifications on their official sites.

In addition, this software will allow you to use it for the arbitration strategy as a slower broker. Thus, the two trade accounts will allow for the use of the arbitration algorithm, which is based on the analysis of exchange rate difference of currency pairs. And in case of deviations towards the slower broker it opens in the direction of future increment.

For example:

A faster broker has a EUR/USD cost of 1.0610, and a slower broker has the value of EURUSD of 1.0600. Thus, the algorithm sees an explicit course difference and decides to open the transaction in a slower broker, because quotes are delivered later and it is very likely that the cost will be 1.0610. These ten points that are the potential income of the fix api trader.

For more information on arbitration trading, please read the wiki page: https://en.wikipedia.org/wiki/Arbitrage

Despite the simplicity of this program, it is important and useful for those who use algorithmic trade in their trading. Inaddition, thereare a numberofkeyadvantages:

  • Work through financial protocol fix;
  • The integration of the cTrader accounts into the MT4 trading platform;
  • The ability to use the full functionality and many additional programs for cTrader trading which cannot be done in a standard terminal;
  • Opportunity to trade according to the arbitration strategy.

These key benefits make the connector fully adaptable for Lock Arbitrage, and also use it for automatic trading with MT4 tools on cTrader accounts.

The use of this software will lead to a lucrative arbitration trade strategy and expand the list of available trade accounts. Moreover, using different types of accounts will allow you to hide the algorithm from those brokers who prohibit arbitration trading because the use of a header will not arouse suspicion in brokerage companies.

Overview of the main forex social networks: why can they help the trader?

Social networks play one of the key roles in today’s world. Every day, we visit these resources and communicate with friends or colleagues.

In trading, the same situation. To find the professional’s opinion, you can get the profile on social networks and ask any questions you want. Moreover, there are special sites that aim to increase the social activity of the traders, by discussing the market, publishing signals or results of their trade strategy. These are the sites we’re going to talk about today.

The first thing to note is that tracking results or publishing your work is aimed at improving the result in trading. After all, you can see what you write or what a successful trader sells, ask for an opinion on your signal or analysis. Such resources are a source of useful information and, at the same time, networking, which enables the development of fix api trader his trade.

Yet what resources are available for social activity in the fix API Forex marketplace?

1. MQL

Perhaps one of the largest resources. Yes, you can’t call it a social network, but there’s also a forum where both traders and software developers find interesting topics for themselves. Also, the trade signals service brings together managers and investors. Here you can ask any question about the software, trading, developing author signals, and opinions on products or signals from the actual customers.

2. Tradingview.com

The service is designed to build technical analysis and monitor the current state of the market. Basically, you can view quotes for all currency pairs, shares, indexes, futures, and so on. A huge database allows you not only to build your prediction on any financial instrument, but also to share it. This creates a circle of traders, where you can track all the published ideas and their results.

3. eToro.com

A service similar to Tradingview, where you can publish trade signals. But! For a separate fee. That is, the entire material and the community is generated only after the subscription. However, you can write to the author to ask for an opinion about a financial asset.

4. fxsocialnet.com

The purpose of this resource is to publish the trading results, where everyone can see the manager’s scores, profitability schedule, and to communicate with the market about everyone in the system. Also note that there is a detailed schedule of the manager’s trading algorithm, trade specification, and the cost of the subscription.

These social sites allow you to better understand market characteristics as well as different views on the market. You can, for example, view the recommendations on Tradingview or eToro, and based on this, make a decision about investing in an asset.

In addition, social activity can help the trader:

  • To create a name among other market participants. After all, if you place quality content in your profile or publish profitable signals, you will be able to attract interest;
  • To find the answer to any question;
  • Get an opinion on your fix api trading strategy or even ask other members of the social site;
  • Identify profitable trade strategies;
  • Optimize your trade algorithm.

I advice every fix api trader to engage in social activity, because in the fight against the market, it is better to know the opinion of the majority, which will allow for more accurate forecasting of the future of the asset price movement. These resources can also demonstrate your professionalism as well as attract external capital to your trading.

How much should a trader pay for software?

Becoming a successful trader, primarily depends on the acquired experience and skills in the financial market. After all, this sphere requires a special and long-term approach to mastering the methods of analysis and forecasting the value of financial assets. Thus, first of all,marketing strategies are being developed and constantlygenerated, as well as the understanding of the market, rules of dealing with assets and risks. But in the end, everyfix api trader comes to automate his process by creating algorithmic strategy or other software, which aims to improve financial result from trade.

And of course, a huge role in it plays the factor of who and for how much can turn the strategy into a robot, create an information or signal panel, create a script to regulate open positions, and so on.

I want to note that, first of all,the cost of the software depends on its complexity and specification, which will be incorporated into it, but I think this is understandable. That is why, every trader buys or orders software, depending on its complexity and economic outputs. That is, if with the implementation of software, the profitability from trading operations will grow, for example, at fix apiforex, then you should immediately purchase the program data.

And yet, how much should a trader spend on buying software? I will highlight a few key points that will determine the cost of the software and on the basis of which it will be possible to determine more precisely the price.

1.Type of software. As I said, the complexity of the program will increase its cost. So for simple scripts, the average cost will be about 30-40 dollars, for information panels 50-100 (depending on the completeness of the information), for trading robots and signal panels the price increases several times and can become within 500-2000 $. Again, it all depends on the complexity of the trading algorithm. If your system is based on the intersection of medium-slippery, then the price is clearly not $ 2000, but if you have an integrated trading strategy that is based on author indicators and fixapi trading techniques, then prepare to write a large check.

* I emphasize, that this is the cost of software development, which only later, you, as the author, you can resell. As a rule, the cost of selling ready-made software, and not under the order, is a little cheaper.

2. Integration with the trading terminal. If the program is universal and can be used on various trading platforms, it raises the cost of the software, because otherwise there are several types that will differ by the program code. For example, a trading robot that trades through the fix api MT4 platform will not work on MT5 or any other terminal. If the program is a separate software and does not depend on the terminal, it can raise its value by half, and the cost – somewhere in one and a half.

3. The possibility of trading through the FiX protocol. There is very little number of software on the market that trades through this protocol. Typically, these trading robots are designed for arbitrage or scalping strategy and the cost of which ranges from $ 1000 to $ 1500. But there are more expensive products on the market, after all, there are very few such programs.

To determine if you can afford software or not, I recommend:

  • Determine the economic effect of the perches of the program (how much you can earn on it in your trade);
  • Will it fit your trading style?
  • Will it fit into your trading strategy.

I still want to point out that you need to determine the value from your investment opportunities, because this is an investment in yourself and in your trading. Banks can spend millions on automatization of the trading process, like brokerage companies, but for simple traders, this amount is not feasible. And I recommend that you spend no more than 30% of the net profit from fixapi trading. After all, the presence of profit, will indicate a working algorithm that can be automated or software can be createdunder it.

What should the trader know about the broker to avoid losing a deposit

From the time of Jesse Livermore, the brokerage houses were not different from the current ones, which are playing against the trader in the financial market. Of course, today this case goes beyond the boundaries when the trader is not paid his well-deserved profits or simply deprives the whole deposit. It’s about the terms of trade.

Today, we’ll talk about what fix api trader should know about a brokerage company before opening an account in it.

To begin with, let us take stock of the main characteristics and types of brokerage companies.

  1. Brokerage houses with a DD (Dealing desk) system. I recommend you avoiding this, because this system involves internal processing and overlapping of warrants. That is, all purchase or sales requests that the trader makes are simply overlapped by the broker: you’re trading directly with the broker. And of course, there will be one obvious favorite in this fight. Your profitability is a potential loss to the company.
  2. Fix api forex broker with the NDD system (Not Dealing Desk). These companies provide market access through their STP or DMA services. The bottom line is that by using these services, all market applications fall directly to the liquidity provider. I mean the market, not the internal server.

But it’s not just a form of everything. There are also a number of negative parameters that can be set by both the first and second classifications of brokerage companies:

  • Gapping. This parameter directly affects the financial result of the trade transaction. In essence, this is the moment of delay in the execution of the trade order. That is, when you open a deal, there’s a delay in the fraction of the second for which the asset’s price changes its value and the transaction is not opened at the planned prices. You’ll agree that fix api forex market is very volatile, and even a small fraction of a second determines the result.
  • Spread. It’s the difference between the cost of bid and ask. Simply put, this is the difference between the buying price and the selling price. The greater the difference, the less profitable the result, as you know, purchases are for the sales price and vice versa. And if you’ve set the take profit level, the deal can go beyond your mark and not close because of a big recession. Conversely, transactions may not be closed at the level of stop loss, which increases the potential loss.
  • Treaty. Even in an official document, brokerage companies find loopholes to leave the trader out of profit. Thus, many companies, for example, prohibit arbitration trade or even high frequency trading.
  • Server rollbacks. It is often the case that when a failure occurs, brokerage companies make a small “rollback” of the system, so that all the transactions that were committed at that time are cancelled. And then, if you had any good deals, they just disappear.
  • Dealing problems. This is rarely the case, but there is a time when quotations are very different from the market price and have other parameters, which nullifies the whole technical analysis.

These are the key negative points that can occur in trade through brokerage companies. You won’t find a completely clean broker. And if you do, let me know.

I can give my examples of what I pay attention to when I select a brokerage company, before I place my assets there:

– What system the company is working by;

– Availability and specifications of trade accounts;

– The ability to trade through fix api;

– Level of leverage;

– Swaps and commission;

– And, of course, gapping and spread.

 

A bright trader always tests the new software on the market

When we buy a new product, we’re in a hurry to experience it in the first place. Whether it’s a phone, a tablet, a computer, or a car. We don’t understand how the new purchase works for us wothout trying it. Same with fix api trading. We will not be able to understand how the software for trade is qualitative until we try it in action.

Many have a need to test for trading, and only few do it. Because if you can simply download and use the free trade in the process, you won’t be able to get the fee. However, today many developers allow you to use demos of their product versions so that the normal trader can analyze how much software they are able to do. Such versions tend to be trimmed and have a limited list of trade instruments (multiple currency pairs fix api forex) However, the instrument itself, whether an indicator or a sales expert, can be tested. I therefore recommend that you pay attention to this. You can test any kind of software.

The software test plays an important role in shaping future profitability. That’s why you need to test it in a real market and with real conditions. Of course, no one has rebjektestyed with various strategy testers (for example, as in the fix api MT4), but market data will show a more real picture.

Therefore, testing the software allows you to:

  • To learn about the robot’s trade algorithm, methodology, and logic of doing business;
  • Analyse the correspondence between the trade strategy described and the actual results;
  • Know the actual profitability of the software
  • Learn the financial performance of trade (profit factor, recovery factor, boarding, sharpness coefficient, profit and loss ratios, espected value and AP.)
  • Understand the extent to which your trading style and trading system fit;
  • Identify “bugs” and software errors;
  • Understand whether your program is suitable for your fix api forex broker.

Market conditions are not a substitute, because profitability will be pushed only on the market, so the program needs to be tested on the market. All traders understand this well, and therefore they are sceptical about testing on historical data. The market is not constant and often changes trends, so the test must be in its current state, so that you can adjust the program, set it up with other software, and apply it in its trading.

What are the threats, the absence of premature software testing?

  • The trade algorithm may be based on non-current and non-operating trading systems, which does not guarantee the profitability of trading;
  • No flexible settings. For example, a list of working financial instruments for which the risks and manis of management will be traded or parameters;
  • Negative metastatic expectations of trade strategy;
  • Lack of integration with the trading platform;
  • Negative historical test results.

In order to test the program on the market, you don’t have to have the huge capital that you can allocate to the test. No. Here, you can try the minimum amounts and also set the minimum risk parameters (if any) in the program. In fact, I can recommend that you use cents to bring your testing closer to more market conditions.

Remember that it is necessary to test each product based on the current situation and at the current time, because the market is here and now. This is why it’s better to know what software is capable of, and also what to expect from using it in your fix api trading.

 

 

How do I choose the right software for trading according to the delay arbitration?

For sure, we’ve all been looking for the most effective tool for a comprehensive analysis of the financial asset. Whether it’s a trade strategy, a copyright indicator, or even a software program. Benefit from the development of the financial market, the additionally simplified industry and the fix api tradingand made this process automatic.

Today, I suggest that we review the trade strategy of arbitration delays (fix api Latency Arbitrage) and determine the most qualitative application of this system.

First of all, I want to determine that the strategy of Latency Arbitrage is to analyse price quotations, compare them in different sites, and if price deviation is detected, to engage in a trade transaction towards the expansion of quotes.

For example, the value of USD/CAD currency pair given by a one fix api forex broker is 1.3355, and second broker gives 1.3350. So the trade algorithm, knowing where quotations are delayed (by a slower broker), opens the transaction to the price in a faster supplier of quotes. This allows you to capture the minimum motion, but at the expense of a large number of transactions, to show a positive result.

Returning to the choice of the best software for this kind of trade, I would like to say at the outset that the software should be able to trade through the financial protocol fix, so that we can get more up-to-date information and trade without large spreads and slippage. This parameter must be mandatory in a merchant robot.

I also recommend that you pay attention to the following options in the software for Latency Arbitrage:

  1. Which sites compare the quotations. This will allow you to test the brokerage company in advance, review its terms, and get an opinion on the current customers. In most cases, you can select different sites (LMAX, SWISSQUOTE, Exante, and others), making your application more flexible.
  2.  Which trade instruments are used by the algorithm. It is necessary to understand whether there will be trade on all available tools or only on certain currency pairs. The quality criteria will be a broader list of available tools, both major and cross-currency.
  3.  Ability to be used with different trading platforms. If you still purchase similar software that will automatically trade using exchange rates, you should know if you can integrate it with your terminal. But again, trade through protocol FIX solves this problem.
  4.  Software backtesting. A very important parameter. It will generate and learn the expectations of trading according to this strategy. I recommend that you pay attention to indicators such as subsidence, profit factor and recovery factors, expected value, and sharp coefficient. And, of course, the profitability of a trading robot.
  5.  Feedback from current clients. To a trivial, simple, but current method of selecting software for fix api trading. The more feedback, the more users are there. The more users, the better the software manufacturer. I think it’s clear and we shouldn’t dwell on that.

By applying these 5 key parameters in the selection of quality software for FIX API Latency Arbitrage, you can find a reliable product.

In fact, I personally recommend that you pay attention to programs that were developed by companies rather than by a trader. This will be useful, because if necessary, you can always get an advice on application or optimize it for your trade with the fix api forex. The market is alway moving and the software must also be regularly updated.

 

How does social networking can help the trader?

Today, there are many tools for the analysis and prediction, as well as community social outreach, for successful trading. Social activism and communication in the interest groups provide valuable experience and a solution to almost any problem.

However, the the majority’s question is: “Why does a trader need this?” “For a successful market analysis, all that needs to be known is the future price situation in both the long and the short term.”

The purpose of such communities is a precise, successful work together and achieving personal goals set by the Fix API trader. Before becoming a successful trader, it is necessary to pass the thorny path to success, and it is very important that at this time there be like-minded, able to give advice and support.

In addition to the moral elements, the networking to date has been successfully applied in most niches: from financial to industrial. In a community like this, you can organize the traders around you who trade in your methodology or you can even teach your algorithm. Alternatively, you can hear a market opinion from a more professional trader, ask for information and details of personal success.

There are many different sites that accumulate a large number of traders. I’ll share with you the kinds of places which I am a part of and where I do recommend you to get an account.

  1. Forums. It’s probably one of the first kinds of social sites that drove traders together. In the thematic forums, a question can be asked and many answers can be obtained, on the basis of which effective solutions were taken. Today, the forums also function well and act as a knowledge base, where almost every element of the Fix API trading has been discussed for a few decades.
  2.  Sites for publishing investment decisions. Playgrounds like these appeared not too long ago. By using them you can recommend investing in any financial market asset, publish your future movement forecast price, or learn what your colleagues are selling.
  3.  Social networks. Of course, today no company or successful trader can live without a profile in a popular social network (LinkedIn, Facebook, Google+, and so on). This allows for a personal contact with the trader, access to the latest events from the marketplace, or even the transactions that your colleagues are committing.
  4. And of course, the blogs. For example, in my blog you can find a lot of useful content about trade robots, the most popular technical analysis and algotrading, and read my opinion on any question that applies to the modern trader. And of course this article. 

    These are the main sites that allow you to personalize your personal connections with other players in the marketplace and also to recommend yourself to the trading circle.

    If you are a socially active fix API trader, you will be able to resolve the following issues:

  • Lack of knowledge about the sphere of financial markets;
  • Search for investment ideas;
  • Search for trading software;
  • Feedback and opinions on trade robots or strategies;
  • Finding an effective manager or investor;
  • Polishing the trade strategy;
  • Learning the recommended parameters for capital management;
  • Getting advanced knowledge and guidance from experts.

And I’m sure that’s not the whole list. You can find an answer to any financial question in the community forex fix api. The main thing is to be active and to ask questions, and the more questions, the better the result. Forex networking will help you to organize an effective community to solve the problem of stable and high-income earnings from the financial market.

What risk parameter to set when trading with Latency Arbitrage

Effective capital management is a key parameter in any integrated trading strategy. Capital Management includes parameters of risk management and money management.

Risk and money management must be considered in a complex with capital management, as components of the same whole.

  1. Risk management is risk control in each individual transaction.
  2. Money management is about managing all available deposit, allocating funds between transactions, and limiting general losses.

Rules for risk and money management, as well as the rules for transaction entry, should be:

  • understandable and logical
  • easy to apply.

Based on this, the risk and money management rules are part of each trading strategy, and the FIX API Latency Arbitrageis no exception.

Latency Arbitrage is a type of FIX API arbitrage trading which main feature is the simultaneous analysis of the same currency pair, but at different stock sites or different brokerage companies. To understand the basic principles of this strategy, I suggest that we consider an example:

The price of the EUR/USD currency pair at the “quick” FIX API Forex broker is 1.07220;

The price of the EUR/USD currency pair at the “slow” FIX API Forex broker is 1.07225;

The example shows that the spread between the two sites (in our case, brokers) is 5 pips. These are the five pips that are the potential revenue for the trader. Based on the data collected, the algorithmic trading robot (I recommend that you use special software to automate as well as simplify trading, because arbitration in manual mode is virtually unrealistic), makes a decision to sell the EUR/USD currency pair, since the second broker price is lagging behind, and it is necessary to open transactions in the direction of a “fast” broker. Thus, the algorithm would perform a  minimal potential trade operation.

Of course, such negative moments as spreads and slippages have a negative impact on the FIX API trading process. However, in order not to exceed the set risk parameters, the capital management principles of which I have written above are necessary. And in the Latency Arbitrage strategy, they also should be present. As we have determined that the potential for profitability in arbitration transactions is minimal, the risk should also be set to low values.

Therefore, I recommend to consider the following points before you install a certain risk percentage:

  • Maximum spread level;
  • Average slippage level
  • The maximum number of open trade transactions that are set into the robot;

When you know these moments, you can set the desired risk and set it according to these parameters.

I emphasize that you should trade “based on the risk”. That is, before opening a transaction, you should understand what percentage of your funds you are ready to give the market.

With the fact that Latency Arbitrage nets only several points, or even pips of profit, setting risk to profit ratio at 1 to 3 or 1 to 4 is unrealistic. But! Since the minimum profit requirement in this strategy is provided by the quotations in one transaction being delayed at the slower broker, I recommend that you set the risk to profit as 1 to 1, or as 0.1% of the deposit amount. This will ensure that the funds are preserved and, in the case of a large slippage, help not to close the transaction with a loss, but to achieve the fix level – the exchange rate. Moreover, in the event of increased volatility or a sharp market reversal, this would allow to exit the transaction with minimal losses.

Since the profitability of the Latency Arbitrage trading strategy is created by the number of speculative positions, the risk of 1 to 1 will guarantee the profit and positive mathematical expectation of the trading system.

Proper risk management improves the financial performance of the trading strategy as well as guarantees investment security.