The use of arbitrage trading directly depends on the size of the investments that you’re ready to make.
We often encounter clients who want to first test a trading strategy with small amounts of money before committing larger sums.
Often traders and investors are different individuals. The trader needs to convince the investor, which requires good trading results. When the trader does not have sufficient funds, he is forced to try to achieve good trading results by using small amounts of money.
This approach is understandable, but it doesn’t make it a good approach. Managing $1,000 is not the same thing as managing $100,000 – the technology, money management tools, and brokers that are used will be very different in these two cases. The methodology used with $1,000 will be nothing like the methodology used with $100,000.
Let’s look at some of the methods available to different kinds of investors. I am going to break them down into different levels, but this is not an exact science. If you’re planning on investing $10,000, you can do as well with the method recommended to investors who have $100-8,000 as with the method recommended to investors who have $8,000-50,000. But this will still serve as a good point of reference.
When you have several million dollars to invest, I recommend opening a prime account with a company such as abnamro.com. Once you create your own liquidity pool based on the PrimeXM bridge, you can use multileg arbitrage with the help of our Multileg VIP Arbitrage software, comparing prices between different providers. At the same time, you can sell liquidity to brokers.
Investors with $30,000-50,000 might do well with two FIX API accounts used in conjunction with Hedge Arbitrage. The accounts should be with brokers who have their servers in the same data center, but with different liquidity providers. Many clients often confuse liquidity providers with technology providers. PrimeXM or oneZero are technology providers that will help you connect to a liquidity provider (such as Invast or CFH) via FIX API.
In other words, you can have a PrimeXM FIX API connection for two different brokers and use our hedge arbitrage software, but the technology providers can be different.
If you have $10,000-30,000 to invest, I recommend having two FIX API accounts and locking arbitrage, and/or one FIX API Account and two FIX API accounts or one account and hedge arbitrage. Both applications will work well. When using lock arbitrage, it is desirable to use FOK orders in order to control slippage; if the broker does not support FOK orders (i.e., if they are not built into the protocol), you can also use market orders for the purpose, since slippage with FIX API will still be lower than with . Do not use IOC orders as they might lead to incomplete fills, which can cause imbalances between your locks and, consequently, cause losses.
When using hedge arbitrage with two FIX API accounts, we also recommend the use of FOK orders. If you know which of the two brokers is the faster one, you can try enabling the “open on slow first” functionality. In that case, the application will not open orders with the faster broker until they’re opened with the slower one. In that case, you can avoid a situation where an order fails to open with the slower broker for some reason and an order is closed with the faster broker with a loss.
For investors with $1,000-10,000, it is best to use locking software with two FIX API or two brokers. If FIX API brokers are used, it is better to use FOK orders; if these are not possible, then market orders can be used.
Finally, for investors with $10-1,000, we recommend locking arbitrage with two brokers. After some four weeks, latency arbitrage can be turned on – if, for example, some news is about to come out.
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