Having received thousands of e-mails from our users, we realized that many our clients, both actual and prospective, make the same mistakes when working with arbitrage programs. This article will help you avoid these mistakes.
First of all, it’s worth bearing in mind that, when using arbitrage strategies, you periodically need to close your existing account and open a new one. How often should that be done? That depends on several factors. The first one is your trading preferences and purposes. Many traders leap into forex trading with the intention of striking it rich quickly. While arbitrage trading makes that possible, you have to realize that the bigger your monthly profits, the more unwelcome attention you can expect to get from your broker.
At this point, you might as well ask yourself if it won’t be easier to use non-arbitrage strategies, without having to worry about changing the broker or about caps on profits. That is certainly an option, but only arbitrage trading will deliver high profits with practically zero risk.
I receive many letters from traders seeking advice on what to do when a broker changes trading terms or conditions (for instance, by increasing slippage). At the same time, some of these traders have posted daily returns of 100% or more.
At the risk of being repetitive, I will reiterate that, the higher your profits, the more often you need to change your accounts. This is not a foolproof rule, but it will work most of the time. Monthly profits of 60% or more are bound to get your broker’s attention.
How do you find a new broker? Many traders don’t expend too much thought on it and simply come to us for recommendations. While we can certainly help with your broker selection, we also recommend that you look for one on your own: if you find a new broker for your arbitrage trading yourself, you won’t have to worry about hundreds of others arbitrage traders targeting the same broker, which should help you use that broker for longer periods than if you were to go with a broker we recommended to you.
How do you go about testing?
First of all, you should use a VPS that is recommended by is, since our feeder is also located on the same VPS, which increases your chances of success. Many of our clients write to us to tell us that they want to use other VPS providers because they offer lower prices and broker pings as low as zero, etc.
I’d recommend the following. Do your testing on a recommended VPS and, if the results are positive (you’re profitable), you can move to your own VPS provider. You will save both time and money that way.
You don’t need to test all of your currencies. You can limit your testing to GBPUSD and EURUSD – this should be enough to determine whether the broker works or not.
Be sure to test on news and during “no-news” periods. Some brokers work better with trading the news; others work equally well with news and with no-news periods.
It’s important to understand that any links between accounts might give your game away to the broker.
Opening accounts through IB links is not a good idea, as it is very likely to cause your broker to change the trading conditions for one of your accounts, and then identify and flag all the others.
The use of PAMM is only feasible if you and your investors are ready to constantly change your brokers.
The worst thing you can do is ask a broker whether arbitrage trading is permitted, or to look for friends among employees of brokerage firms.
If you ask a broker about arbitrage, your name will be flagged before you even start trading. If a broker professes on its website to be tolerant of arbitrage strategies, it means the broker has advanced plugins that allow the broker to trade against you as soon as you start to make money. There are also unregulated brokers that try to take advantage of traders through such means.
You cannot have friends at a brokerage firm, even if you know these people outside of work. While this may sound a bit cynical, money is money, and your interests are not aligned with the broker’s interests. This applies to any other profitable strategy, not just arbitrage strategies.
Let’s say you’ve found a broker who works well with your arbitrage program. Now what?
A good idea is to make the broker a bit complacent. Start trading by using a couple of advisors, ideally unprofitable ones, before you get your arbitrage program to start working and making money for you.
My own strategy of monthly 30-40% returns makes it possible to trade through a broker – as long as I am using locking arbitrage, naturally. Once the account is flagged, I open an account under someone else’s name and resume trading. This can be a bit tricky but, once again, no other strategy is as profitable as an arbitrage one and no other strategy offers such low risk.
Finally, I’d like to address one frequently asked question about locking arbitrage – whether it’s possible to have two accounts, of which one is a real account and the other one a demo account. This question is natural when a user’s stats show profitability in both accounts. As you can see from the following statements,
Statement 1 (<<< Click link to view statement)
Statement 2 (<<< Click link to view statement)
this approach is unworkable because, under certain circumstances, the market can move in one direction, leaving one account profitable and the other one in negative territory. It is impossible to predict which one will be profitable and which one unprofitable.
Statement 3 (<<< Click link to view statement)
Statement 4 (<<< Click link to view statement)