Regina, SK Canada (PressExposure) February 28, 2012 -- Today we're going to talk about Forex Arbitrage.
With properly built and used FOREX arbitrage systems, you can earn great profits with minimal risks. We will come to that. To begin with, let's take a look at the exact meaning of Forex arbitrage.
You can find various types of Fore arbitrage, but all of them are based on the same principle. That principle is you can profit off the time delay if you know the value of a future price in the tiny amount of time before it appears in your terminal. This means that you need to get the information ahead of time, it's almost like being a psychic. If not with this clairvoyance, you will no other choice but to rely on your Forex broker's slowness.
Forex brokers get their prices from liquidity providers, as you see. However you might also observe that when the liquidity provider sets the price, and when it gets to the broker, there is a miniscule lag in the time. And some brothers get their quotes faster than other brokers do depending on a broker's latency, server capacity, server delay, number of requests, processing speed, and so on.
In that way, Forex arbitrage comes in. Your Forex arbitrage system can open a position with the slow broker based on a quote it's already received from the fast broker, if you find one slow broker, and one fast broker. One that it already knows will be profitable shortly. And you will have made a small profit since it will close as soon as the position enters the zone of profitability.
This is known as Interbroker Forex arbitrage.
Another type of Forex arbitrage is Intermarket Forex arbitrage. This works on the same principle as Interbroker Forex arbitrage, except in this case your Forex arbitrage system is receiving its rapid quotes directly from the liquidity provider. So the quotes comes in much faster than from any fastest broker, and this is the advantages to this.
In the case of Interbroker Forex arbitrage. The solution is to look for two brokers with a significant gap between them in lag time. You want to find one that's the fastest of the fast, and another that's the slowest of the slow. This is the way to really make a profit with Forex arbitrage.
The best Forex arbitrage system should really work very fast. With great speed, it should receive quotes, compare them, and send orders. If you all you want is the best Forex arbitrage trading system, then you must make sure that it is base on Application Programming Interface (API). This is a particular set of specifications that will allow different software programs to interact with each other. API will allow you to receive quotes directly from a broker to your system, compare them, and then send orders directly to another broker. So you can save about two seconds in latency. It is the foundation of Forex arbitrage.
You should also know at this point that brokers do not like Forex arbitrage. In order for them to discourage this practice, they have regulations built in. One of those regulations is the mandate that the lifetime of an order be at least one minute (Forex arbitrage happens within seconds, or perhaps factions of a second). They may also set minimum profits at several pips (Forex arbitrage relies on tiny profits multiplied many, many times).
And you can also find many brokers explicitly forbid Forex arbitrage, so if you get caught you can get bounced.
In order to fight Forex arbitrage, brokers also use technical methods. Sometimes they'll recheck the price and send you a requote. Long queues for order execution, necessitating the requotes and causing delays that stymie Forex arbitrage are the effects of this rechecking.
There are also some possible negative outcomes to using a Forex arbitrage system that you should be warned about.
One is that even if your Forex arbitrage system works for a time, a broker may eventually catch on to what's happening. Then you will end up with a banned IP and account number. Or instead of banning you they may throw a non-market quote against the direction of market movement to fool your Forex arbitrage system, this is the worse situation. This is a setup - it can cause your Forex arbitrage robot to open a money-losing order. A few of those in a row and suddenly you've lost your entire deposit. And it's done so skilfully, you'll never see it coming.
Good thing is that you can avoid these issues, by masking your Forex arbitrage system from the broker so that it appears to be a regular trading system. The good Forex arbitrage robots will be masked like this.
You should take note at this point that the key is to go and find yourself a fast and a slow broker. Then, once you have your Forex arbitrage system in place, you'll find that it can be an extremely profitable form of Forex trading!