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Profiting from Broker Quotes

  • #1
  • First Post: Edited 9:11am May 4, 2007 9:09am | Edited 9:11am
I was observing the GBP/USD on two broker MT4 platforms during the NFP this morning. 1st broker has fixed spread = 3pips, 2nd broker widens spread = 12+. During normal market conditions, they are within 1pip of each other, and the 2nd broker has a spread of 4-5 pips. This morning ,after the release, I noticed a huge gap between the two brokers. For instance:

At the same exact time/second:

1st broker: 1.9912/1.9915
2nd broker: 1.9871/1.9883

The 1st broker increased their pricing before the 2nd broker. What I would have liked to do was, at that instance, simultaneously, Buy at the 2nd broker at 1.9883 and sell at the 1st broker at 1.9912. When the market calms down and the spreads go back to normal, wheather it be 2 min or 2 hours, it doesn't matter, I would close both positions with both brokers simultaneously. I have noticed these quote discrepancies on numerous occassions. The end result would have been +31 pips.

Here's what I need, and can anyone program it?:

I need a program that will observe the pricing on both platforms and when the difference between the lowst ask price of both brokers and the highest bid price is greater than 15 pips (you can make this what ever you want), place those orders.

Here's the catch. In order for this to work and not screw us, the orders need to be filled instantly at those prices. I was thinking a limit order would work better, versus a market order.

What are your thoughts, comments, feedback?
  • #2
  • May 4, 2007 9:38am May 4, 2007 9:38am
Why didnt you get in when you noticed that one of your broker's price was lagging? Although it could be that they stopped their server during news and thats why the price was not moving?
  • #3
  • May 4, 2007 10:03am May 4, 2007 10:03am
Quoting PipStar
Why didnt you get in when you noticed that one of your broker's price was lagging? Although it could be that they stopped their server during news and thats why the price was not moving?
The quotes were moving the whole time, the server wasn't down. I had autoclick going on one and straddle going on another, as is, that is too much to handle, never mind trying to think of what to do next.

I compared the pricing on the ISM release earlier in the week from my video capute, and the quotes we pretty in line on this one. Maybe this would only work for the NFP...
  • #4
  • May 4, 2007 10:16am May 4, 2007 10:16am
Yeah, I did this and monitored this...between MT4 brokers is usually the best.

I actually monitored about 7 different feeds including a few ECNs. I could consistently see the differences between the ECNs and the MT4, but there's no way to send signals back to the programs since I used an external application to process the quotes together and it was multi-threaded (monitoring 7 feeds independently in separate threads).

I could have built a database that would have monitored and then have the DLL check the database, but i figured there might eventually be contention since the program required a high through-put.

Just FYI, this is harder than you think...you're not guaranteed of getting a fill even with a program monitoring. Worse, you may get one broker to trigger and the other broker keeps requoting.

Ideally this would be easy money (until they decide to centralize the market), but in practice, it's much more difficult to do.

Quoting jeffreytp
I was observing the GBP/USD on two broker MT4 platforms during the NFP this morning. 1st broker has fixed spread = 3pips, 2nd broker widens spread = 12+. During normal market conditions, they are within 1pip of each other, and the 2nd broker has a spread of 4-5 pips. This morning ,after the release, I noticed a huge gap between the two brokers. For instance:

At the same exact time/second:

1st broker: 1.9912/1.9915
2nd broker: 1.9871/1.9883

The 1st broker increased their pricing before the 2nd broker. What I would have liked to do was, at that instance, simultaneously, Buy at the 2nd broker at 1.9883 and sell at the 1st broker at 1.9912. When the market calms down and the spreads go back to normal, wheather it be 2 min or 2 hours, it doesn't matter, I would close both positions with both brokers simultaneously. I have noticed these quote discrepancies on numerous occassions. The end result would have been +31 pips.

Here's what I need, and can anyone program it?:

I need a program that will observe the pricing on both platforms and when the difference between the lowst ask price of both brokers and the highest bid price is greater than 15 pips (you can make this what ever you want), place those orders.

Here's the catch. In order for this to work and not screw us, the orders need to be filled instantly at those prices. I was thinking a limit order would work better, versus a market order.

What are your thoughts, comments, feedback?
  • #5
  • May 4, 2007 10:24am May 4, 2007 10:24am
I notice the same thing during large moves, it doesn't always happen but sometimes. It happens so quick you don't have time to see it and react quickly enough. Although there have been times where I've seen the discrepancy for a couple of seconds. I was trading the news awhile back and was watching MTB and they had a negative spread. I don't trade with them yet but someone in a news chat room was actually messing around with it and made a couple of pips here and there. If you find something, definately let me know. :-)
  • #6
  • May 4, 2007 10:28am May 4, 2007 10:28am
If you take advantage of quote timing differences between brokers, it's called "latency scalping"

The brokers all know about it, and if your broker determines that you're doing it, your account will be suspended or closed. If you read the fine print in your customer agreement, no matter which broker it is, you'll find a clause about this very issue and it's not allowed.
You are in a maze of twisty little passages, all alike.
  • #7
  • May 4, 2007 10:37am May 4, 2007 10:37am
I guess I never read that in the agreements, but then again, how would they know?
  • #8
  • May 4, 2007 10:38am May 4, 2007 10:38am
How would you broker know that you were "latency scalping"?

What this essentially is buying a perfect hedge and waiting for the position to become positive (which it should hopefully start out positive if you've covered two times the NORMAL spread).

If the Bid is HIGHER than another broker's ask, then you buy the lower ask and sell the higher bid...then you wait 10, 20, 30 minutes or hell even 2-3 days...then you take your profit... There is absolutely no way a broker can tell you're latency scalping if you do it this way unless they're feeding you invalid pricing...in which particular case, you're teaching the brokers not to F--K with the market price (which essentially, they could be doing)

It also just dawned on me, but how would YOU know which broker was actually in the right with the pricing unless you were monitoring more than 2 brokers.

I just think brokers would have a hard time proving that anything was due to latency if you don't make the trades a pure scalp (closed within seconds ore a few minutes).

Quoting stevegee58
If you take advantage of quote timing differences between brokers, it's called "latency scalping"

The brokers all know about it, and if your broker determines that you're doing it, your account will be suspended or closed. If you read the fine print in your customer agreement, no matter which broker it is, you'll find a clause about this very issue and it's not allowed.
  • #9
  • May 4, 2007 10:46am May 4, 2007 10:46am
Quoting mrmikal
Just FYI, this is harder than you think...you're not guaranteed of getting a fill even with a program monitoring. Worse, you may get one broker to trigger and the other broker keeps requoting.

Ideally this would be easy money (until they decide to centralize the market), but in practice, it's much more difficult to do.
Yeah, that's what I figured.
  • #10
  • May 4, 2007 10:48am May 4, 2007 10:48am
I have been doing this for several years now and made a lot of money doing it too but I don't arb between two brokers. I trade one outright.

I've found that when you make enough money or your win/loss ratio causes extreme suspicion, the broker fixes the problem rather than suspends your account.
  • #11
  • May 4, 2007 10:52am May 4, 2007 10:52am
Wizard, how are you doing it and with with brokers? Are you basically doing it during spikes or also during normal trading? How many pips do you normally capture?
  • #12
  • May 4, 2007 11:18am May 4, 2007 11:18am
Quoting broug
Wizard, how are you doing it and with with brokers? Are you basically doing it during spikes or also during normal trading? How many pips do you normally capture?
Hello Broug,

I am doing it during normal (although not necessarily the most active) trading hours, when the price "spikes" and becomes out of line with the "real" price.

This is not the result of news, infact I am not sure what causes this - whether it is a data or a manual error but either way, I have been able to take advantage of it time and time again.

I am afraid that I do not wish to disclose what broker I use as I neither want to encourge fraudulent behaviour or give away my edge.

As to the number of pips, it depends on the market that becomes out of line. Last week, I managed to take 55 in 15 minutes. In late February I made 75 instantly.

But when I started two years ago, I found a broker that misquoted consistently and I was making hundreds of pips per week, just from checking from time to time whilst at work!

Tom
  • #13
  • May 4, 2007 12:20pm May 4, 2007 12:20pm
if anyone let your broker win a case like this against you then u are...well...kinda lame. cuz they have no proof that u are using this method. just keep your two brokers as secret
100% of traders are losers. Just that some win more than they lose!
  • #14
  • Edited 12:38pm May 4, 2007 12:27pm | Edited 12:38pm
Guys, you're like babes in the woods (well, I'm assuming you're all guys). The customer agreement that I'm familiar with states clearly that the broker may declare a transaction invalid "as determined by XXX at its sole discretion". They don't have to prove anything! By opening and funding an account you automatically agreed to those terms. It's a binding contract and those are the terms.

Here's the exact clause referring to latency scalping:

"to exploit any temporal and/or minor inaccuracy in, and/or any delay in the display of, any Exchange Rate;"
You are in a maze of twisty little passages, all alike.
  • #15
  • May 4, 2007 12:40pm May 4, 2007 12:40pm
that makes no F-ing sense, trading FX IS EXPLOITING that's why we do it? someone plz tell me i'm Right.

FX is all about exploitation. Do i have a point?

whenever my broker tries to steal my pips i just call them up and deal with them proper!
100% of traders are losers. Just that some win more than they lose!
  • #16
  • May 4, 2007 2:01pm May 4, 2007 2:01pm
Quoting jeffreytp
I was observing the GBP/USD on two broker MT4 platforms during the NFP this morning. 1st broker has fixed spread = 3pips, 2nd broker widens spread = 12+. During normal market conditions, they are within 1pip of each other, and the 2nd broker has a spread of 4-5 pips. This morning ,after the release, I noticed a huge gap between the two brokers. For instance:

At the same exact time/second:

1st broker: 1.9912/1.9915
2nd broker: 1.9871/1.9883

The 1st broker increased their pricing before the 2nd broker. What I would have liked to do was, at that instance, simultaneously, Buy at the 2nd broker at 1.9883 and sell at the 1st broker at 1.9912. When the market calms down and the spreads go back to normal, wheather it be 2 min or 2 hours, it doesn't matter, I would close both positions with both brokers simultaneously. I have noticed these quote discrepancies on numerous occassions. The end result would have been +31 pips.

Here's what I need, and can anyone program it?:

I need a program that will observe the pricing on both platforms and when the difference between the lowst ask price of both brokers and the highest bid price is greater than 15 pips (you can make this what ever you want), place those orders.

Here's the catch. In order for this to work and not screw us, the orders need to be filled instantly at those prices. I was thinking a limit order would work better, versus a market order.

What are your thoughts, comments, feedback?
I am not quite sure I understand. how exactly do you stand to make money by doing this? can someone explain this more simply.
  • #17
  • May 4, 2007 2:17pm May 4, 2007 2:17pm
I can't comment on the legal side of it and whether or not your broker will allow it or not but I can tell you that I have taken a significant amount of money off three seperate brokers. One in particular had its head trader contact me - I was told that the problems I was exploiting would be fixed but they never even suggested taking back what I had made.

Just my experience.

Tom
  • #18
  • May 4, 2007 2:31pm May 4, 2007 2:31pm
I do something similar, and I just trade with one broker, knowing that it is the slower one. You can make a lot of money doing this, and quite safely too. Let's just say the broker did take your money away, you are losing opportunity and some time, (maybe even your ego).

I made $5000 using 20 lots, 25 pips on NFP today. Why not take advantage of it if I can? And I agree that if they don't want this happening, then they better make the system faster with faster execution and faster quote to the point where there is no more "requote".

However, I want to say that in the end, you want to learn how to trade properly.
  • #19
  • May 4, 2007 2:47pm May 4, 2007 2:47pm
I agree - it's vital to learn to trade "properly" so that you can make a living when the brokers become efficient. Which I have no doubt will happen eventually.

Right now, if it's easy money then why not make it?

It's got a little harder now but when I first found these opportunities it was like a licence to print money.

It got to the stage where I making so much, whenever I wanted it, that my broker was literally like an ATM machine.
  • #20
  • May 7, 2007 2:33am May 7, 2007 2:33am
If anyone wants an example of how this works, take a look at this mini spike pattern that occured from midnight to 6.48am BST this morning, in the USD/JPY.

Check your chart (2 min) - I bet it didn't look like this.

You can make a whole lot of pips in almost seven hours with a spread of 2 and a move of 6.
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