In the vast majority of cases, scalping and arbitrage strategies happen to be more profitable than any other strategy. As a consequence, brokers whose business model is based on the B-book and on making money off deposits lost by traders – such brokers are not interested in clients who use scalping and arbitrage methodologies in their trading. For that reason, brokers can resort to certain wily techniques that prevent traders from making money. They might, for example, require the trader to keep an order open for more than 5-10 seconds, sometimes even for minutes. Or they might use add-ons that allow the broker to increase the execution time of an order.
To help traders get profitable, we have developed an algorithm that allows the trader to circumvent any restrictions imposed by the trader’s broker and conceal an arbitrage trading strategy if one is used.
When the market is calm, the trader opens hedge orders in two accounts. By way of example, the trader opens a long position in EURUSD both in the first and second accounts. The accounts can be with the same broker or with different brokers. Of course, if the trader has both accounts with the same broker, the trader will need a second name. It might be a good idea to ask a friend or a relative to open an account with the broker for this purpose.
When an arbitrage situation arises, the trader closes one of the orders, thus creating something of a virtual order to which a trailing stop is applied. When the trailing stop is triggered, the order is reopened but, this time, in the other account.
What is achieved by using this algorithm?
- First, the broker sees that the orders have been open for an extended period of time, which means that any requirements to keep the order open for a minimum of 5-10 seconds have been met and the order cannot be canceled.
- Second, when the arbitrage situation arose, the trader did not have to open a new order, which made it impossible for the broker to identify it as an arbitrage order.
- Third, many brokers tend to close orders faster and with less slippage than they open them.
This algorithm has become an integral part of our locking arbitrage software.
At the present time, it happens to be one of the most effective and promising products on the market.
Lock Latency Arbitrage ver. 1.4
Lock Latency Arbitrage allows you to open 2 opposite (buy and sell) orders on 2 different accounts for each trading symbol. It can be two different brokers or two different accounts with the same broker. When arbitrage situation appear, software closes opened order on symbol, applies trailing stop for corresponding virtual order, and opens new locking order on the other side when S/L or T/P is hit.
Price on fast broker: Bid: 1.35005 Ask: 1.35006
Price on slow brokers A: Bid: 1.35010 Ask: 1.35011
Diff to open on slow Broker: 3
Opened order(s) on broker A on GBPUSD: SELL
Arbitrage situation is detected for long position. Instead to buy, we will close SELL order and apply trailing stop to virtual BUY order (ticket number of virtual order will be the same as for closed order, but opening price will be the price at which original order was closed); An when the stop loss is hit, we will reopen SELL order on broker b. So now on Broker
A we will have no orders on GBPUSD, and on Broker B we will have 2 orders – BUY and SELL. So now trading on GBPUSD will be performed only on broker B, and when long or short situation appears, one of the orders will be closed, and the other one will be locked on Broker A as the result of hidden S/L or (T/P).
This algorithm helps to solve two major problems:
-To increase the lifetime of the orders and thereby camouflage the arbitrage trading;
-Replace the orders opening by the orders closure, and thereby reduce the time of execution and therefore slippage.
As with latency arbitrage and 2-legs arbitrage, the software can work with MT4 and FIX API accounts; if you happen to have a cTrader connector, it will also work with cTrader trading accounts. In the near future, we also expect to add to this product the ability to mimic manual trading.