Ways to implement arbitrage trading in the forex market

Trade in the financial market via the arbitration system is certainly known to every professional trader in the fix api forex market. However, the opportunity to realize it, for this market, appeared recently thanks to the automation of the analysis process and financial assets selection.

To understand the key ways of implementing the arbitration algorithm, we should understand the principle of its work.

Arbitrage is a trading strategy type that consists in committing speculative exchange transactions based on exchange rate differences between the same financial tool, but on different stock exchanges.

There are several key types of fix api arbitration trading, which are used by a trader in the market, namely:

  • Latency Arbitrage;
  • 2-leg Arbitrage;
  • Triangle Arbitrage.

The first two types we implemented in our software products: Latency Arbitrage – http://forexzzz.com/product/forex-zzz-lock-arbitrage/, as well as 2-leg Arbitrage – http://forexzzz.com/product/zzz-2-leg-arbitrage/.

Based on our success, today, we will consider the key ways to implement the first and second algorithms.

Fix api Latency Arbitrage

This type of arbitrage trading consists in 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 the quotes are received with a delay.

Implementation Algorithm:

  1. Set the parameters of a faster and slower broker. A faster broker will be fix api, and a slow one could be almost any brokerage company that is not a liquidity provider.
  2. Set the parameter for opening and closing the transaction taking into account different currency pairs and time period (excluding the most volatile ranges). Let’s consider that we have established the opening of transaction for EURUSD after a divergence of 10 points at different sites, and we close when returning to 5 points.
  3. We analyze the same currency pair at two sites. The algorithm analyzes the same asset (in our example this is EURUSD), and when the fast broker value shows a 10-point divergence, the robot will open a deal. Let’s consider that the cost through fix api was 1.1450, and for the slow one – 1.1440. Then, the robot opens the purchases on the accounts of the second broker. When the price quotes are back to the regulatory range of 5 points, the robot will close the position and thereby will earn 5 points based on delays.

Fix api 2-leg Arbitrage

This trading algorithm has the same principle, but it opens two transactions to buy from a broker where the quotes are lower and a sale where the value of the currency pair is higher. Here you do not need to find out which broker delivers more current quotes, but instead which is with a delay. It will be enough to know similar parameters as above, but also to carry out trade operations simultaneously on two different sites.

Implementation Algorithm:

  1. We determine on which two sites we will conduct fix api arbitrage trading.
  2. We set the parameters for opening and closing the transaction, taking into account different currency pairs and the time period (excluding the most volatile ranges). Similarly, lets it be the same EURUSD with a 10 points of divergence and 5 points to close the trade.
  3. The trading robot conducts constant analysis of the given currency pair and at a divergence of 10 points, it will open transaction. Let’s consider that the cost also amounted to 1.1450 for the first one and 1.1440 for the second one. Based on these data, the robot will open a deal to buy from the second one and sell at the first. When the exchange rate difference returns to the normative value of 5 points, the robot will close the trading operations. Let us consider that the cost is 1.1475 at the first broker, and 1.1470 at the second one. The deals are closed with results – 25 points from the sale and +30 points from the purchase. Thus, this trading strategy is riskless, because there will always be profit in several points.

This is the application of the arbitrage algorithm in the forex market, which can be realized with the help of software developments and access to the financial protocol via fix api.

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