Broker Arbitrage

Few days ago a guy who isn't even a professional trader but trades for fun (he is a programmer) showed me something interesting.
I had already heard about the concept of arbitrage in forex, triangular arbitrage and so on, but he wrote a software that compares different quotes from different brokers and when there is a discrepancy the software opens a trade and closes it when the price is aligned to the price of the other brokers.
For example 3 brokers quotes eur/usd 1.3500 and 1 broker 1.3490. Open buy 1.3490 and close 1.3500 Full auto
Would it be something doable in real market? (he said he didn't try...and he's not giving it away)
I was thinking about it because it would be risk free...

Yes, it is possible in real markets, I'm not sure about automatically, because I'm a lousy programmer, but its possible....I usually have at least two platforms from two brokers pulled up while I'm trading and there have definitely been small discrepancies that are tradable, or at least one broker's price will break seconds before the other, giving me a an entry that is almost immediately positive, which is nice on the psyche...

The problem arises when you aren't sure which dealer is leading the other, which is why, as your guy said, it would be great to have price feeds from 4 or 5 and punish the one that gets out of line.

All that being said, finding a 10 pip difference will be very rare, in my experience it could give you a head start, but not a risk free 10 pips...would be nice though...

Yes it is doable, but probably not for long as brokers will pick up your trading patterns and put you on manual execution, especially true for market making brokers. Generally, trading based on price latency is frowned upon.

This is quite common in sportsbetting, when two bookies offer different odds on the same event you can back both sides and guarantee a profit. Five years ago it was extremely profitable but so many people do it now that arbs only last up to a couple of minutes, then the bookie which is out gets knocked back into line very quickly by the sheer volume of arbitrage hunters.

It should be very well possible, and I wouldn't be suprised if many people run their bots all the time. It isn't risk free though. Here's my three main points. You should always consider slippage, requotes, and you shouldn't overleverage so that you get margin called before prices converge.

I know a guy who put a big one of these together and all the firms closed his account for "predatory trading". The FX Dealers wont let you get away with taking money out of their pockets

I don't know, maybe you're right... but it would be nice have a try since it's risk free.

I think it's very possible but firms won't let you do it, and its very frowned upon like someone else mentioned.

you'd only have a chance to cash in on the bucket shopts... who are in turn the most dubious of characters

This is entirely doable but you must have excellent speed of execution... something which most bucket shops (MT4) lack. The speed issue is what prevents this from being effective as your bot must place an immediate entry or exit order as soon as the difference or consolidation within predefined limits occur.

You would more than likely need to trade this with an ECN using STP, using a speedy machine located at your broker or at the very least as close to them as possible.

Also bear in mind that if a particular broker does have a latency issue, they are more than likely taking advantage of this fact themselves so it is less likely that they will allow you to take advantage of it also.

I agree its possible, but all in all its not worth spending the money to setup since retail brokers will shut your account down anyway

why spending the money? worst case scenario you waste some dollar for deposit/withdrawal fee....

Anybody wants to try it?
I can link you to the owner.
pm me or email me

This has been done many times. Yes, you can do it and make a few bucks-- but your method will be discovered and you will be shut down. In this way, it is not much diffrent than counting cards at blackjack. You can do it for low stakes for a while, but if you ever threaten to start making any real money you will be scrutinized and shut down. If you want to do it for fun and a few bucks, then enjoy. If you are trying to make substantial money..... move on.

You won't last. The broker will shut you down with quickness as soon as they pickup your strategy.

On a small scale, you're in a position to make some "pocket change; larger scale, expect to be placed on manual execution with 20-60 pip slippage.

I am the one with the software. I very well could have been the one that was interviewed in the original post, but we no longer do those type of demos. It works, and it will continue to work and all the doubts and "OPIONS" above are valid and have been overcome. (wouldn't work without overcoming them) There are however probably 10 bigger issues and challenges not mentioned in this post that as you play in the big leagues you learn. BUT for those realy seeking and willing don't let anyone tell you it can't be done, and that's no peep talk. It's being done everyday in my office! Good luck and ping me with questions

greetings,

i can do this.

i am a veteran coder with 27 years of coding experience.

i am a very skilled C language coder.

i am a quite astute metatrader coder, DLLs included.

we can do this with a mixture of metatrader and non-metatrader brokers.

assuming that any of the non-metatrader brokers have an api.

i could pull it off so that no broker would ever know what is up.

i know how to deal with any potential slippage issues.

good day, gentlemen and ladies.

edward/.
http://img695.imageshack.us/img695/5981/me1lu.jpg

Edward, Sure you can. It is a lot of work, but it can be done. As I have said I do it already. PM if you ever want to compare notes. Good luck!

greetings,

i apolpgize, but i forgot to take down any notes.

catch ya on the flip flop.

edward/.
http://3.bp.blogspot.com/_WVmyDjMfCN...0/carbeer4.jpg

Is it possible? Yes.

Will I make a few bucks ? Yes.