Forex Arbitrage Strategies

FinanceTrading / Investing

  • Author Alexander Demin
  • Published October 24, 2017
  • Word count 549

The modern Internet is full of tempting offers about easy earnings in the Forex market - it is enough just to guess correctly the direction of the market movement and comfortable existence is provided. However, statistics is also well known, which suggests that more than 80% of Forex traders lose their money. This is due to the fact that, contrary to advertising promises, financial markets are almost impossible to predict. But not everything is so sad, there are trading strategies that are not based on predicting the direction of future market movements, but on other principles. An example of such strategies are forex arbitrage strategies based on the extraction of profit from the price difference for the same financial instruments presented on different exchanges. As a result, these strategies allow you to earn in any market movement and do not require the trader ungrateful work on guessing the direction of the movements of financial instruments.

Let's discuss in more detail what the essence of arbitration is. The main idea of these strategies is to take two (or more) identical or linked assets traded on different sites, and when the price on one exchange becomes more than another, then make an arbitration deal: to sell the asset where it is more expensive, And buy where it is cheaper. When the prices on the stock exchanges are equal, then it is necessary to perform a reverse operation and close the positions. As a result, each arbitrage transaction will yield a guaranteed profit, independent of the market movement.

The strategy described is known as the classical two-legged arbitration. But in some cases, particularly forex, it is more advantageous to use one-legged arbitrage, in which transactions are carried out only on the side of one broker, which is "led" in relation to the second broker. In those cases when the quotes of one of the brokers are late relative to the second, the profit from the arbitrage deals will accumulate on the side of the lagging one, so there is no point in opening the opposite transactions on the second broker.

Consider what options exist for implementing arbitrage strategies on Forex. First, the most famous option is arbitrage of exchange rates. In this case, usually only one-legged arbitration is used, because the situation when the quotes of one broker is late relative to another is not uncommon in forex trading. Secondly, a wide range of options is provided by the option of arbitration between CFD-contracts traded in Forex and stock exchange instruments. In particular, you can use quotes from the stock exchange as a leading source and trade only CFD-contracts. Thirdly, it is possible to arrange arbitration between futures, for example, from the CME futures market, and CFD-contracts for the underlying assets underlying these futures traded in Forex.

In conclusion, we note that modern trading is characterized by the highest degree of competition among bidders. The trader who has not only the best trading strategy, but the best software wins. Arbitrage trade is a high-tech way of earning, which requires a special program - a trading robot capable of performing simultaneous operations on various trading floors. As an example of such a robot can lead Megatrader, which works with forex as well as with the stock market and can implement almost any arbitrage strategy.

On the website: you can find useful information, which can give you an opportunity to build successful forex arbitrage strategy. Megatrader software can realize forex arbitrage strategies of any complexity. Become a successful forex arbitrage trader with megatrader.

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