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Price/Latency Arbitrage
Source: | Author:it-1070383 | Publish time: 2020-03-04 | 139 Views | Share:

Forex arbitrage is an opportunity to get a quote for a fraction of a second before it appears in the broker’s terminal. This is a real time machine!

Arbitrage trading (price latency arbitrage) - a strategy in which the trader gains an advantage due to earlier access to market information, for example, using a direct (cross) connection to the trading platform, hosting servers near exchanges.


Everything is much simpler here. Most Forex brokers are “kitchens” or clearing organizations in which client requests for conducting trades are satisfied by counter requests from other clients of the same broker or by the broker. If the broker does not have a counter-order and does not conduct an external operation, the broker independently acts as the opposite party to the transaction and a conflict of interests arises - the client’s profit turns into a loss for the broker, and the client’s loss - the broker’s profit. The broker uses quotes from his liquidity providers, and in most cases executes the transaction at the worst prices for the client.

Meta Trader4 / Meta Trader 5 / cTrader trading terminals receive brigge, special software. The rate of processing applications is very low and in most cases the broker does not use a high-speed data transmission channel (since this is an expensive technology). Thus, due to the lack of software on the server side of the broker and other internal reasons, quotes on forex brokers are lagging behind the real stock quotes and there is a possibility for latency arbitrage. Price delays can reach 2-5 seconds. On average, it is 500 milliseconds. This is quite enough to place an order at the old price and make a profit in a few seconds!