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20 forex arbitrageTrade on the forex market with the help of programs (terminals) and computers has become for many an exciting activity, compared to which attempts to call brokers and give them orders during a panicking market seem simply a nightmare.

At the same time, electronic (online) trading has revealed to observant and active traders one pattern, which will be discussed in the material. Today, a large number of brokers (DCs or dealing centers) provide their services on the market, but each of them, although built on similar principles, has its own algorithms of work and translation of quotations to user terminals. Now we are not talking about attempts to deceive the DC, but about the technical features of online trading, which allowed to perform operations such as forex arbitrage.

If we open terminals of two or three brokers, we notice that the quotes of one may lag behind the others, but in general it is possible to repeat or almost repeat the price curve of the remaining brokers. This is what we need: when we see the price movement in a fast terminal and its lagging behind in a slower terminal, then in the latter we open the position in the direction of price movement. To open a position, the price difference in the terminal must exceed the spread / commission. It takes very little time to make a decision in this situation and it is almost impossible to make such operations by hand. To work on the system of forex arbitration, special programs have been created - trading robots that open and close transactions in accordance with the specified terms of trade, usually when prices are leveled in terminals. This system is not designed for the average retention of positions and refers more to scalping trade. Too long position hold (more than 10 minutes) in this case is not advisable, because the price difference in the terminals is most likely not caused by the beginning of large movements or other price hikes, but by technical hiccups or adjustment of equipment. The chances of catching a serious movement are extremely low, but getting a drawdown on your account, and then for a long time and, often, it is useless to wait until the account comes out of it, it is quite possible, therefore a deviation from the rules can negatively affect the balance.

Sometimes there are situations where the difference in terminals is impressive, but the transaction does not open due to requotes - this is the standard situation and it is also necessary to act in it standardly. In order to profit from such situations, it is necessary to open at a time when the difference has not yet reached the size of the spread, and the closing is effected in a situation of a reopening. Thus, the number of transactions will become noticeably larger, and the statistics and account will tell us about the profitability of the system.

This trading algorithm, in which only one position is opened, is called "one-legged", that is, the transaction occurs in one of a pair of terminals. Profitability of work is calculated by statistics, which must contain enough data for the conclusions (minimum of 30 transactions).

14 arbitrageArbitrage strategies are rightly recognized as one of the most reliable in any market, since they make it possible to earn on the movement of prices, as such, without binding to a specific direction. Like most other approaches, the first arbitration tactics appeared on the stock and commodity markets, and only after the 1980s the process of their optimization for Forex began.

In part, this was due to the late appearance of the modern currency market, but the main reason is still in the architecture of the Forex market, but today we will not blow out the dust from history, of course, we will consider the most popular arbitrage strategies.

So, the very first method, which occurs in any forum or worse - at seminars, is called "triple arbitration". It is reduced to trading three currency pairs in the hope of catching the discrepancy between the synthetic rate of the third pair and its real current price. Such an approach does not bring results, so we will not even waste time on its detailed description.

Of course, sometimes it happens that someone, ostensibly, earned a triangle, but in reality everything amounts to an erroneous calculation of the volume of orders.

In simple terms, the profit was obtained not on the price difference, but due to the fact that the volume of one pair was more than the other. Therefore, it is better to go directly to effective arbitration strategies, proven time.

INTERMARKET ARBITRAGE

In the environment of beginning Forex traders, a negative stamp is attached to arbitrage strategies, as many understand them playing the game on the difference in the quotes of several DCs, which appears due to technical failures. In fact, such an approach has nothing to do with arbitrage.

Before understanding further, remember, and what is Forex? As a rule, this term means a spot currency market or in other words - an interbank, and this is absolutely true. But on the stock exchanges there are also currency futures, the dynamics of the prices of which may differ from the trend on the spot market.

Thus, from time to time it becomes possible to earn honestly on the resulting exchange rate difference of the same currency, performing opposite operations on completely different sites. In this situation, the speculator sells an expensive instrument and buys the one that turned out to be cheaper.

It is not necessary to have a serious capital for such operations, as now the CME (the Chicago Mercantile Exchange) can start trading in a contract for the euro with only $ 500, and transactions on a real interbank bank may well replace the dealing center (hereinafter DC) with low spreads and commissions.

Some enterprising speculators are building even more cunning schemes with exchange offices, electronic payment systems, "special unique" are not lazy to travel with suitcases, even in different regions, where there are profitable courses in banks, but this is more of an ordinary gamble, and not business, .

ARBITRAGE STRATEGY ON CORRELATION, SPREAD TRADING

In order not to cause confusion, we recall that in this case, under the "spread" (hereinafter we will write it in quotation marks) is understood not the difference between ask and bid, but the difference between the prices of two or more instruments. Perhaps this is one of the most reliable ways to multiply the probability of a profitable transaction, while minimizing the risks. Before opening orders, you will need to perform several actions:

  • choose DC with minimal spreads, in this case even the floating spread will not be a hindrance, since stop-loss is not used;
  • select high-correlation instruments in the long term, as an example, a combination of the dollar index and the pair usdsek (Swedish krona);
  • at the last preparatory stage, we plot the pair "spread" either in the form of a difference, or in the form of a price ratio (this is not in principle) using special indicators.

Currently, there are a lot of such indicators, but it is better to limit the modification of the known dollar index, which can be edited in any way in MetaEditor, in particular, for our example we get the following result (to edit the parameters, we'll have to open the editor):

14 arbitrage 2

As you can see, thanks to the high correlation, partly due to the algorithm for calculating the dollar index, the "spread" spreads most of the time within a certain range, periodically testing the boundaries. This is the main for most arbitrage strategies on Forex.

At the very beginning of the publication, we mentioned that arbitrators absolutely do not care which way the price will go. With regard to the situation with the crown this will mean the following: a pair of "pre" usdx / usdsek will decrease if:

  • The dollar as a whole becomes cheaper faster than the crown;
  • Crown as a whole rises in price faster than the dollar;
  • The dollar rises in price more slowly than the crown.

Thus, the main thing is that the dual "spread" spreads from the upper limit of its range, and which scenario from the above will develop - it does not matter. After the newly made "synthetics" fought off and went in the right direction, we sell usdx and buy usd / sek. After some time and exit of the "portfolio" in profit, it is recommended to include a script or an adviser, which will close both transactions when the breakeven level is reached.

A private type of spread trading is the purchase and sale of the calendar "spread", which can also be rightfully called an arbitrage strategy, but they do not presume trading from the range boundaries, but the purchase (sale) of a short-term contract (futures on the underlying asset) and simultaneous sale (purchase) distant contract.

As a result, the speculator's financial result will depend only on how fast the demand for individual contracts will grow or decrease, but what kind of market there is formed - bull or bearish, it does not matter. By the way, such arbitration strategy helped the funds to save tens of billions of dollars during crises with their long trends.

18 currency arbitrage Of course, absolutely every trader dreamed that he will have a strategy that will bring him huge profits. But the main thing is that you do not have to constantly carry out this boring analysis of the market, always sit at the monitor. Is not it? Everyone would like to!

Yes, everyone wanted this, but is it possible?

In financial markets, particularly in the Forex market, there is such a thing as currency arbitrage. Arbitrage is a series of logically related transactions aimed at extracting profits from the difference in prices for the same or related assets at the same time in different markets or in the same market at different times.

And you can not say that arbitrage of currency pairs will really give you everything at once, but this is exactly the case when your risks are striving for absolute zero in trading, when you do not need any analysis of currency pairs, and you will not need any surveillance behind the market. Arbitrage on Forex is the case when you will really get your earned income without exerting effort.

CURRENCY ARBITRAGE - WHAT IS IT?

It is worthwhile to place all the points above the "i" at once. Forex currency arbitrage is the execution by a trader of transactions for the purchase or sale of a currency with the subsequent mandatory execution of a reverse transaction in order to obtain profit.

If the trader will use arbitrage on Forex and at the same time control the risks, then his trade can become extremely profitable. The meaning of currency arbitrage is the following: profit is achieved due to the fact that the purchase and sale of financial instruments occurs at different times. In addition, a trader has the opportunity to conduct a financial transaction in another market. Arbitration of currency pairs involves not just buying and selling currency on the market, but also a reverse operation, the one that will ensure the receipt of profits.

TYPES OF CURRENCY ARBITRAGE

In total, several types of arbitrage are available to the trader. There is a simple arbitration, involving the use of only two currencies, as well as a complex one, which involves the participation of three or more currencies in the operation.

Depending on what profit can be obtained, the following types of currency arbitrage are determined:

- Temporary. Temporary arbitrage on Forex is the most common type of arbitration. The essence of the temporary arbitration is the difference in the exchange rates of currency pairs at different times. Temporary currency arbitrage can be of two types:

  1. "Purchase - Sale". A trader buys a currency cheaper to make a profit with a subsequent sale at a higher price.
  1. "Sale - Purchase". The trader sells the currency expensively in order to buy it back at a lower price in the future.

- Cross-country. It is considered one of the most difficult types of arbitration. At the time of cross arbitration there is a simultaneous change of the courses in two pairs. Such cross-imbalances occur on Forex all the time.

- The inter-exchange. Inter-exchange currency arbitrage arises in the event that the rate is applied to the difference in exchange rates in different currency markets.

However, arbitrage on Forex is not always profitable, because in modern conditions, exchange rates on various exchanges do not always differ, which prevents traders from gaining additional profits.

The main essence of arbitration is the holding of futures deals on the purchase and sale of currency options. The option is subject to compulsory execution, and its conditions depend on its type and mandatory provisions of the concluded contract.

In general, the choice of the Forex strategy depends on many factors, related to each other, which the trader must necessarily take into account when participating in the trade.

TRADING METHODS OF ARBITRAGE ON FOREX

But today we will consider not only the types of currency arbitrage, because there are also a lot of varieties of arbitrage methods of trade, which vary in methods of work, markets, the number of tools and other parameters. Consider the most popular types of arbitration.

1. Statistical currency arbitrage on Forex - buying and selling one financial instrument in different markets or from different brokers. Used for uncertainty of the market. One of the assets closes when the key price level passes, and the second is left to accumulate profit.

Statistical arbitrage also includes trading using the same type of assets - for example, currencies and CFDs for a similar pair, or trading in different futures of one underlying asset, and so on.

2. Currency arbitrage on forex is the execution of transactions involving the use of currency pairs and synthetic market assets.

Currency arbitrage on Forex is the most effective and popular method of arbitrage strategies. Considering trading strategies, you can also highlight some types of currency arbitrage.

  • Intermarket or spatial currency arbitrage in Forex - is the opening of transactions in different markets. For example, buying a currency pair in London, and selling in Tokyo.
  • Interest rate arbitrage in the foreign exchange market - this method of arbitration involves the purchase or sale of an asset taking into account the difference in interest rates in the countries that form the asset. Thus, if you choose the right pair, then for each day of holding such a position, positive swaps will be charged.
  • Synthetic arbitrage is the most popular method of arbitrage. It consists of synthetic arbitrage based on the purchase and sale of currency pairs that are directly or reverse conversion. It is also important to find the right currency pairs, as well as the moment of entering the transaction.

To consider an example of currency arbitrage, it is first worth recalling what a synthetic transaction is. For example, we have currency pairs EUR/USD and USD/CHF. If we multiply them among ourselves, we get the EUR/CHF currency pair. Just in such a situation they say that the pair is synthetic, that is, it is formed from two currency pairs.

Sometimes it happens that a currency pair is not available for trading in the terminal, but it can be obtained by synthetics of the other two currency pairs that are available for trading. In our case, EUR/CHF is a very common tool. Only here the values ​​at the same time point for the instruments EUR/CHF and synthetics EUR/USD and USD/CHF do not always coincide.

Another type of Forex arbitrage is trading using one tool, but in different conditions. For example, earlier people found clearances in quotes on different trading servers in the same company. Or another option, when the discrepancies took place for the same currency pair, but in different companies.

The principle remains common, namely, the opening of counter positions in the divergence of the values ​​of selected trading instruments. Closure at convergence of values ​​or at the following divergence in the opposite direction.

17 optional arbitrageArbitrage is the simultaneous purchase and sale of identical financial instruments, taking advantage of price differences among various brokers, exchanges, clearing companies, etc. and, thus, making a profit. Theoretically, arbitrage is the least risky trading strategy. However, in reality, the risks are present in large numbers.

Why trade arbitrage?

When controlling risks, arbitrage can be extremely beneficial if you can find opportunities and take advantage of these opportunities before they disappear. In the end, arbitrage opportunities arise when one side does not hurry to react to market news, momentum, etc. When it is corrected, the opportunity disappears.

Why an options arbitrage on Forex?

If you look closely, there are good opportunities for arbitrage transactions. The Forex market is a cash interbank / inter-dealer market. Simply put, this means that foreign currencies traded on the Forex market are sold directly between banks, currency dealers and foreign exchange investors who want to either diversify their investment portfolios, or speculate or hedge their currency risks. The Forex market is not a "market" in the traditional sense, due to the fact that there is no centralized location for making deals and therefore transactions concluded in the Forex market are considered over-the-counter.

Currency trade between the parties of the transaction occurs through computer terminals, exchanges and telephones in a thousand different places around the world. Therefore, the Forex market is not as effective as, for example, the New York Stock Exchange. Price discrepancies arise between trading platforms, clearing firms, banks, etc., but only for a short period of time. The discrepancy in options pricing occurs for the same reasons, but since in addition to the price of the relevant currency there are other components involved in the option valuation, these discrepancies tend to exist for longer periods of time.

One of the most common reasons for the difference in the valuation of an option is the calculation of variability. Variability is the standard deviation measured over a period of time. Sounds simple enough, does not it? So, if you compare the measurement of variability among various sellers of currency options, then you will most likely find differences of about 2%. When you find such a difference, then consider that you have found an opportunity for an arbitration transaction.

How to trade in arbitration?

Now that you have found an opportunity for an arbitrage deal, you need to decide how to use it. This is somewhat more complicated than can be covered in this article, considering all the risks associated with the implementation of transactions, but we list some of the key points that you must take into account.

First of all, you must consider whether the options are the same between each other, the size of the contract, expiration dates, American or European style, etc.

You also need to consider the risks of execution whether there will be slippage, will there be a delay in execution, is the market moving too fast?

Exit strategy as you are about to exit the deal and still capture profits, what will happen if an option expires in cash (without money), that if you open a position on one option and do not open otherwise.

These are just a few points to consider when trying to make a profit on an options arbitrage. The key aspect for effective trading in options arbitrage is not much different from any other trading is risk management and planning. Plan a deal, manage risks and execute your trading plan. And you, in this case, can successfully use the emerging trading opportunities!

16 earnings based on price movementEarnings based on price movement, which is not tied to any monetary unit or direction, is one of the most reliable ways in the market. Initially, the tactics of arbitration spread in the sphere of stock and commodity exchanges. Arbitrage on Forex began its functioning in the late XX century.

The late optimization is explained by the basic architecture of the Forex market. But, despite the difficulties, still managed to introduce the tactics of arbitration and the most popular market today. Since then, several popular strategies have emerged that have developed in arbitrage tactics.

There is a popular, but not the most effective technique, called "triple arbitration". The essence of this technique is that there is trade between 3 pairs of currencies. In this case, earnings are formed from the difference between the artificial and real exchange rate of the third currency. This method does not bring real income, and most often leads to an error in the calculation of the volume of orders.

Arbitrage on forex with adviser Megatrader has several effective methods, which should be considered more closely. But before you learn more about strategies, you need to understand exactly what Forex is. After all, this is not only a spot currency market, but also currency futures, the currency on which can have a completely different value. Therefore, there is an opportunity to earn on the purchase and sale of currencies, performing operations that are opposed to each other on sites with different values ​​of the chosen currency.

Arbitrage on forex has another strategy based on correlation, the so-called spread trading. This strategy implies earnings on the difference between the cost of 2 or more instruments. This strategy is one of the most reliable, and offers one of the highest earnings. At the same time, the correlation strategy has minimal risks of losing finance. Work begins with some actions that you need to perform before placing orders:

  • You must select a DC, which has a minimum spread. At the same time, a DC with a floating spread is allowed;
  • Choosing tools for work is in the long run;
  • It is best to use the construction of a graph showing the difference between a pair "spread".

The Forex market has a sufficient number of tools that you can use, but it's best to start working with the dollar index. The internal optimized algorithm for calculating the index of this currency, for a long time, the "spread" is in a certain range. That's why this strategy can be called one of the most popular arbitrage strategies in the Forex market. In this case, the risks of fraud are minimal, so this method is an absolutely honest method of earning. A particular case of a correlation strategy is the purchase / sale of a calendar "spread". In this case, the trade is not based on the range, in the nearest contracts.

15 what is forex arbitrageWhat is Forex arbitrage? Triangular arbitrage or trilateral arbitrage on Forex is a widespread practice that is applied in the financial market. This strategy implies a systematic approach, since even the slightest deviation can provoke this strategy to go beyond its limits.

This is how, for example, you would use a certain trading strategy, entering the growing bull market Forex, and then you saw that the market would fall, and you took the same strategy only for the bear market. Such an approach on the currency exchange does not work and every market trend needs to be approached individually.

5 BENEFIT FROM TRIANGULAR ARBITRAGE

The main benefits that any trader will receive when using the strategy of triangular arbitrage on Forex will be:

  • Great profit with significant investments.
  • The accepted risk is at the lowest possible level.
  • Lack of big problems when investing funds.
  • The strategy can be adapted to uncertain situations.
  • When market situations are considered uncertain, it is recommended to invest for a shorter period of time. This gives investors a chance to earn even in such conditions.

HOW TO EARN, USING FOREX ARBITRAGE

You do not need to have a million dollars or accounts from several currency brokers. You can earn money using the statistical Forex arbitrage strategy, when trading mini and micro lots with just one trading account.

The strategy of statistical arbitrage on Forex or trade in pairs, or convergent trade, or Forex spread trading, is based on statistics and on the law of rotation. You need to find two historically interconnected currency pairs using a currency correlation calculator.

When the correlation of two currency pairs deviates from a certain value or falls below its value, you need to buy the weakest currency pair and sell the strongest currency pair. When the law of rotation takes effect, the number of pips from these two trades will be positive.

Tip: when the price of one currency decreases and the other increases, the trader can get significant benefits from investing funds. To date, the Forex market has become a very profitable business, but this requires knowledge of trade tricks and moderate rules. The rules are known as moderate because they are not sharp and fast. They can vary from one period to another.

There is also the possibility that you will get a positive experience from using one approach, which will not bring benefits next time. Use statistics in trading on Forex and try to develop a strategy in order to adapt to any market conditions.

WHAT ELSE IS POSSIBLE TO KNOW ABOUT FOREX ARBITRAGE

If you decide to trade on the basis of statistical arbitrage on Forex, then you need to go through website megatrader.org. This will help to avoid losses. Always watch for currency correlation - then your earnings will not leave you waiting!