2020-10-27 00:41:59
LATENCY ARBITRAGE
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.
WHY THERE IS A DELAY IN QUOTATIONS ON THE STOCK EXCHANGE?
Exchange Nanex conducted research on the behavior of HFT traders after the Flash Crash, which occurred in 2010. Market manipulations by high-frequency traders were found, which included the rapid entry and removal of a large number of orders and attempts to create market confusion and trading opportunities for HFT traders themselves.
Trading robots delay price quotes while filling in the order book, simply placing and canceling orders at a speed substantially exceeding the capacity of the market data transmission channel on the exchange. Orders are accumulated in buffers, and the delay (increased delay) lasts until the buffer is exhausted. Such phantom orders with a speed of more than 10,000 messages per second , even for a fraction of a second, delay exchange channels.
View a list of Software for Latency Arbitrage.
WHY THERE IS A DELAY IN QUOTATIONS ON FOREX BROKERS?
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!
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