Arbitrage - The no nonsense thread

I've looked through the different arbitrage threads on FF for a long time, but it's difficult to get simple understanding on what actually does work for people. I have a person working for me who does nothing but arbitrage (not in the Forex though).

By arbitrage I mean: A kind of hedged investment meant to capture slight differences in price; when there is a difference in the price of something on two different markets the arbitrageur simultaneously buys at the lower price and sells at the higher price .

Therefore I pose the following question, to cut through all the cock and bull, to establish clear understanding:

 

1. What tried and tested arbitrage strategies / techniques work in live accounts? (This can be in any trading market).

What exactly do you mean by arbitrage here? Describe what sort of trades you mean.

Lenoxer

A kind of hedged investment meant to capture slight differences in price; when there is a difference in the price of something on two different markets the arbitrageur simultaneously buys at the lower price and sells at the higher price .

Do you think think that if anyone has a successful arbitrage strategy they will post it on a public forum?

Yes

It is not a problem to code & use arbitrage EA, the problem is
finding a brokers! And when you find one as soon as they find out
what are you doing your account will be closed!!!

Take a look here......best one out there
http://forum.vamist.ro/blog/theeconomist/index.php?

What about PeterM's method below:

peterM
Senior Member
Member Since Sep 2006
http://www.forexfactory.com/images/misc/4kt.gif 1,000 Posts

http://www.forexfactory.com/images/icons/icon1.gif Risk Free Arbitrage with Spread Betting
ok here goes:

I noticed a while ago spread betting companies let you buy and sell currency pairs and many of them allow you to select which currency you want to use for each pip value. For example if you open a long GBP/USD pip values with normal brokers would be in USD. With many spread betting firms you can have pips in GBP.

Assuming I am fully understanding everything, This theoretically creates a "risk free" arbitrage opportunity.

Let me explain:

Say at this point in time, GBP/USD is $2.

If you sold 100k GBP/USD with a normal broker and buy GBP/USD with a spread betting company for £5 per pip, no matter which way the market moved, you would profit.

If price moves to 1.85 in the next few months, The short GBP/USD position with the normal broker would be +$15000. The long spread betting position would be £-7500.

If we look at both position in Pound terms we have this:

GBP/USD long £-7500
GBP/USD short $15000/1.85 (the rate at the time) = +£8108

This would result in a profit of £608.



Now lets see what happens if price moved to 2.15 instead:

The long would be +£7500
The short would be -$15000

Lets convert both positions into Pounds:

We have +£7500 and -$15000/2.15=£6976

This would result in a profit of £524


So as you can see, no matter what price does, you win. These calculations do not factor in the spreads etc. I dont believe any FX strategy is 100% risk free, brokers slip orders especially during the news, brokers can even go bankrupt etc etc.

I have used this strategy for a few months on the GBP/JPY with some great results.

The further price moves from the starting point, the greater the profit. It was excellent in July when GBP/JPY dropped massively.

you are saying opening position with two different broker ?
If so then. one account/pos will have huge draw down and other will have huge profit.. Draw down account will give margin call

Yes with two brokers.

One would only get a margin call if one was undercapitalized or over leveraged. The idea is that the profit from one broker will be more than the loss in the other broker.

lol, you sure must be making a lot of cash....

Finding brokers for arbitrage is not a problem anymore. Check free AOFeed in aonet.eu You will see a lot of brokers which bring many arbitrage opportunities each day.