Arbitrage advisors - big and illegal profits in the market

It will hardly be a revelation to anyone that arbitrage advisors can help to earn impressive profits with minimal risk on the foreign exchange market . However, not everything is as simple as it looks when you first get acquainted with arbitrage.

Arbitrage advisors: inter-broker and inter-exchange arbitrage

What is meant by arbitrage and why is it so profitable?

There are several types of arbitrage systems, but they are based on the same principle - we learn the value of the price that we will see in the terminal some time in advance. That is, we open a position, knowing in advance that it will be profitable, as we have the information about where the price will be in some fractions of a second (depending on the type of arbitrage). As soon as the position starts to be profitable, it is immediately closed, usually with a small profit. The main advantage of this method is the complete absence of any kind of drawdown.

How is this possible, you may ask? How do we know what the price will be in the future?

The expression "future prices" itself is incorrect and that's why. The broker's quotes are supplied by its providers liquidity. The broker's server takes some time to process them and other incoming requests. It is this time that causes the delay necessary for the arbitration system. The load on the server depends on the number and productivity of clients, the number of requests to work with orders, etc. The more information the server receives, the more time it takes to process it. In common terms, the server begins to "slow down".

Thus, we have two sources of quotes - fast and slow. During a price gap, which occurs as a result of an increased level of volatility, the Expert Advisor opens an order at the slow source in the direction of the movement of quotations coming from the fast source. That is, the arbitrage Expert Advisor enters the market on a quote that does not already exist, because it is late due to technical peculiarities.

The task of an arbitrage system is to receive quotes before they arrive in the trading terminal, calculate a potential profit, open an appropriate order and close it as soon as the position begins to make a profit. For this reason in such systems open orders exist for literally a few seconds. Quotes for such a system, as a rule, are taken from a broker, which has a higher speed of information processing. Such a system is called inter-broker arbitrage.

There is another type of arbitrage, which sellers of such systems call inter-exchange arbitrage. The principle, as it was mentioned above, is the same - the difference between slow and fast source of quotations, but the fast source is not a broker, but the liquidity provider himself, for example, a big bank. Undoubtedly banks offer their clients the service of entering the market, but for this purpose you need not a cent deposit, but a big dollar account.

Inter-exchange arbitrage has a number of advantages, because quotes from the liquidity provider, of course, will always be faster than quotes from the fastest broker, which increases for the arbitrage system, where every split second counts, the time to open a position.

Arbitrators on the "outside the law"

Theoretically everything looks promising enough, however brokers whole complexes of counteraction to arbitration systems have been developed.

From the organizational point of view, for example, the regulations of almost all brokers clearly determine a number of parameters, directed against the arbitrage systems: the minimum time of existence of an open position (for example, not less than one minute), the size of the minimum profit and so on. Also, most likely, in the rules there is a direct prohibition on the use of arbitrage systems in their any forms and manifestations.

Among the technical countermeasures to arbitrage systems, a broker can apply, for example, the usual requotes, not opening an order if the requested opening price differs from the market price for the better.

Of course, such ways of fighting arbitrage cause legitimate annoyance to ordinary traders, because re-checking quotes increases the time of order processing, creating a queue on the server and causing the very "slowdown".

Some sellers of arbitrage systems claim that they have managed to implement a workaround and that their system is unique. In 100% cases this is a marketing ploy because, at the moment, it is technically possible to bypass requotes It appears to be impossible. As a rule, such a "unique" arbitrage Expert Advisor simply sends a cyclic request to the server to open a position, hoping to get into a "window" without requotes. This ends up with the broker banning the EA for your account, or setting an additional slowdown filter, which will bring the effectiveness of the arbitrage EA to zero.

If you are lucky with your broker, and an arbitrage advisor installed on your account brings tangible profit (100% profit per day or more), then such trading will not last long. The broker's technical services will very quickly figure out what is wrong, the IP and account number, and possibly all of the trader's accounts will be blocked.

Blocking accounts and installing additional filters on them are not the only ways to "punish" arbitrageurs. There are even tougher options. For example, a broker can intentionally give a non-market quote, at which an arbitrage Expert Advisor will open a loss-making position. A series of orders opened at such fake quotes can deprive the trader of all of the deposit. It takes place inside a candle and will not be noticeable on the chart.

For particularly zealous arbitrageurs, in addition to issuing fake quotes that cause the arbitrage advisor to open loss-making orders, the broker can simply prevent such a position from closing. When opening an order, the arbitrage advisor usually sets a very short stop loss. A live person who understands how the arbitration system works is involved. Your terminal receives a fake quote, the arbitrage Expert Advisor opens a position on it, and the position begins to make a loss. At this time, the dealer, who has taken the arbitrator seriously, provides maximum slippage, which leads to closing at a stop loss, but with a much larger loss.

In general, if a broker takes on an arbitrator, the probability of losing the deposit can be considered one hundred percent. At best, if the request to open an order, even on a calm market, receives an answer about the absence of prices - your activity on this account and from this IP is already blocked.

It is worth noting that many brokers arbitrage advisors show good results on demo accounts and do not work at all on real deposits, brokers simply "clog" them with requotes.

In this regard, the search for a suitable broker and verification of arbitrage advisor possible only on a real account, which takes a lot of time and money because of the losses and commissions transferring money from one broker to another.

Even if you find a broker with which an arbitrage advisor starts to make a profit, do not immediately rush to sew moneybags. As a rule, arbitrageurs are identified by the broker very quickly, and the consequences from blocking, in the best case, to losing all funds, in the worst, will not be long in coming.

Don't think that buying arbitration advisor or systemYou will start raking in money with a shovel. Arbitrage trading is outlawed at all brokers, and they are constantly improving methods of fighting with such traders, punishing the most active arbitrage traders with lost deposits. Nevertheless the subject of arbitrage systems is still alive and arouses interest of many traders, dreaming of fast enrichment.