How to implement arbitrage trading in the forex market?

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How to implement arbitrage trading in the forex market?

Category : Robots , Software

A few years ago, arbitrage trading was discussed only in the stock and commodity markets, because it originated from there. However, the development of information technology has made it possible to create ways to apply these algorithms in the foreign exchange market. This automatic approach turned arbitrage into a reality for fix apiforexmarket speculators.

Arbitrage fix api trading consists in analyzing two identical tools or derivative assets on different stock exchanges and at a time when the cost is significantly different, you can make two transactions and earn on it. It is not a secret that, for example, the value of gold can have one value in Shanghai, and another in London. If this cost is significantly different, arbitrage traders immediately enter the position, as the asset is the same. Therefore, it is worth expecting a price smoothing. The forex market operates based on a similar operation principle.

The difficulty was that the currency market is a single exchange platform. But this issue is solved by fix apiforex brokerage companies. Probably, everyone has faced a spread, which brokers establish and noticed that the cost of one currency pair differs in different companies. This is what allows us to apply the arbitration approach in the foreign exchange market.

Conclusion #1: The implementation of arbitrage means to analyze the same asset, but at different brokerage companies.

However, the second difficulty appeared here. The forex market is the most liquid and volatile market, and the usual fix api trader simply cannot analyze the whole map of the market and other two platforms. What for the trader is impossible, for the robot is easy. Thanks to the algorithmic approach, this issue is also solved.

Conclusion # 2: Thus, the implementation of arbitrage is to analyze the same asset, but at different brokerage companies using automated trading systems.

What you need to implement this idea:

  1. A trading account in two brokerage companies;
  2. Brokerage companies themselves should be reliable, but at the same time should have different liquidity providers or one of the companies should be the liquidity provider itself – the prime broker;
  3. Configure the exchange rate difference of the normative range for the currency pairs;
  4. Find the maximum discrepancy between the quotes from which trading transactions will be opened, using statistical data;
  5. Find the parameter at which the trades will be closed (the minimum exchange rate difference).

These are the simplest methods for creating an automated algorithm for conducting fix api arbitrage trading in the forex market.

How does this work with an example:

Let the trader opens a trading account in different companies and he has an arbitration algorithm that trades on the EURUSD currency pair. If there is a discrepancy between the brokers for more than 10 points, the robot makes transactions in the spread direction. So, if the value of the currency pair at one is 1.1410, and at the second one is 1.1420, the robot will open a deal to buy from the first and to sell from the second one, and when the exchange difference reaches 3 points, the deals will be closed. If the quotes are 1.1455 and 1.1458, then the result is the net profit points, taking into account the fact that arbitrage transactions have a short period of holding positions.

This approach is already used by some developers of trading software. There is software on the market (http://forexzzz.com/arb/), which works on the same principle that I wrote above. But the data for comparison and analysis is obtained with fix api, which allows you to connect to the servers of the liquidity provider and trade directly in the market while at the same time making arbitration transactions between the brokerage companies.


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