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Exploiting broker inefficiency

  • Post #1
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  • First Post: Dec 23, 2008 10:50am Dec 23, 2008 10:50am
I noticed that sometimes, particularly during times of low volume, my broker's ask price is lower than the bid price, sometimes by as much as four pips. It's like having negative spread, and it usually lasts for several seconds. Theoretically, if you're fast enough you could buy a whole lot of lots and sell them immediately for a nice profit. I'm just wondering if somebody has tried something like this before.
Quoting pipsalot
I noticed that sometimes, particularly during times of low volume, my broker's ask price is lower than the bid price, sometimes by as much as four pips. It's like having negative spread, and it usually lasts for several seconds. Theoretically, if you're fast enough you could buy a whole lot of lots and sell them immediately for a nice profit. I'm just wondering if somebody has tried something like this before.
This is in my experience the exact definition of scalping. The problem is that, as the title indicates, you are doing it at the expense of your broker. They are therefore paying you out of their pockets, and since that is not in their best interest it would not be long before they would take action against you, even if that means taking back what you already made.

This is not to say you cannot profit from such an inefficiency. I personally have not been able to exploit what you speak of, but that is no reason for you personally to stop looking into it. This kind of thought process is very healthy as you develop systems and look for reasons why a strategy is successful. Keep it up.
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Quoting Gaston
This is in my experience the exact definition of scalping....
Thanks! I thought that "scalping" was simply short-term trading, now I know better.
Quoting pipsalot
I noticed that sometimes, particularly during times of low volume, my broker's ask price is lower than the bid price, sometimes by as much as four pips. It's like having negative spread, and it usually lasts for several seconds. Theoretically, if you're fast enough you could buy a whole lot of lots and sell them immediately for a nice profit. I'm just wondering if somebody has tried something like this before.
That's what you think.
You will get a reqoute if price move in your favour. Or your entry will stall and wait till price goes against you before it gets triggered.
You cannot out smart your broker. The only way is to get the edge having a better possibility of getting in the right price direction.
Quoting highway
That's what you think.
You will get a reqoute if price move in your favour. Or your entry will stall and wait till price goes against you before it gets triggered.
You cannot out smart your broker. The only way is to get the edge having a better possibility of getting in the right price direction.
Well brah I must disagree on the "you cannot outsmart your broker" comment. Why not? I have thousands of dollars that say differently When I had a Currenex account, I used to see this a lot and took advantage of it. Made probably a couple thousand doing it over a year and a half I'd say. Contrary to what people told me, I never had a trade reversed, never even had anyone ask me about it. And there's no such thing as a "requote" in a true interbank environment, so that was never a problem.

I'm actually not sure why the broker would mind anyway though; they got their commission out of it. The only potential problem would be if the liquidity providers threw a fit, but as I said, it always worked for me, no problems...

I moved my account after spreads starting going through the roof, so don't know if it can still be done.
Quoting pipsalot
I noticed that sometimes, particularly during times of low volume, my broker's ask price is lower than the bid price, sometimes by as much as four pips. It's like having negative spread, and it usually lasts for several seconds. Theoretically, if you're fast enough you could buy a whole lot of lots and sell them immediately for a nice profit. I'm just wondering if somebody has tried something like this before.
There is nothing new under the sun, my friend.
What you describe above is called arbitrage and it's been around for as long as trading has existed.
I arb whenever I see a possibility where I have an edge, not necessarily as per the scenario you mention above.
The market is full of opportunities for the astute trader.
Quoting PipStar
There is nothing new under the sun, my friend.
What you describe above is called arbitrage and it's been around for as long as trading has existed.
I arb whenever I see a possibility where I have an edge, not necessarily as per the scenario you mention above.
The market is full of opportunities for the astute trader.
Great, so it is possible! Can you share some of the techniques you're using, please?
Quoting elgato49
It's really up to which broker you're using right?

Never thought about it.

Kudos to the OP.
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I guess so, as you wouldn't want a broker with fixed spreads, obviously.
I asked this question in another thread about whether Broker Arbitrage is illegal, but did not get a response .. so posting here again for comments.

Who said it is illegal ??? Any web links , proof of the same? Will you get arrested and go to jail or be prosecuted if you trade like this? Is it illegal in some country? I dont think so at all. Brokers know that they cannot protect their asses against this kind of trading until and unless Forex becomes a centralised market and everyone reads off of the same price feed. So its the brokers who spread the word around that it is illegal. Anyone have anyother opinion on that , come out up and we would like to hear.
Quoting forexplayer
I asked this question in another thread about whether Broker Arbitrage is illegal, but did not get a response ..
There is nothing that you trade on your trading platform that is illegal in any way, shape or form, trading style or otherwise. Trade as you please and take any opportunity that comes you way. That's all I can tell you; if you find an edge, exploit it till it disappears.
And never ask your broker any questions about it; just send him your withdrawal form after you've made the profits
Quoting PipStar
There is nothing that you trade on your trading platform that is illegal in any way, shape or form, trading style or otherwise. Trade as you please and take any opportunity that comes you way. That's all I can tell you; if you find an edge, exploit it till it disappears.
And never ask your broker any questions about it; just send him your withdrawal form after you've made the profits
I understand what you are saying , but i guess you haven't had the brokers reject your withdrawals yet. They will find any reason under the sun not to return money , worst case you could lose even your initial deposit. All i would say is.. if you have been doing it well for a period of time and have been lucky to somehow escape scrutiny then just be humble , low profile and keep sucking the blood out of the suckers. Good Luck.
  • Post #12
  • Quote
  • Last Post: Dec 28, 2008 4:15am Dec 28, 2008 4:15am
I don't know about playing with en exploit. It wouldn't be too long before the broker starts to delete orders for being off quotes or something. Once or twice may be overlooked, but if you did it often, the broker would most likely bash you for it later on.
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