Arbitrage Trading

I have been using this method manually based off this formula.
You use only GBPUSD EURGBP EURUSD

NOW. IT CAN ONLY BE A S.S.B. OR A B.B.S combination, in that order.
Lots sizes GBPUSD uses price of EURGBP, rest of the 2 are 1 lots

GBPUSD EURGBP EURUSD
ex, LOTS S 0.95 B 1 B 1


NEXT STEP IS DECIDING WHICH COMBO TO CHOOSE FROM? VERY IMPORTANT
IF SSB THEN,
SELL MARKET ORDER GBPUSD
BUY MARKET ORDER EURUSD
PLACE A PENDING ORDER SELLLIMIT ORDER EURGBP XX PIPS ABOVE CURRENT PRICE

IF BBS

BUY MARKET ORDER GBPUSD
SELL MARKET ORDER EURUSD
PLACE A PENDING ORDER BUYLIMIT ORDER EURGBP XX PIPS BELOW CURRENT PRICE

AS LONG AS THE PENDING ORDER IS TRIGGER YOUR LOCKED IN A PROFITABLE ARBRITRAGE TRADE.

I NEED A WAY TO HELP DECIDE WHICH COMBO TO CHOOSE AND IF THE PENDING ORDER IS LIKELY TO BE TRIGGERED THAT DAY. IF NOT TRIGGERED THEN YOUR IN A DEEP DRAWDOWN TILL IT RETURNS BACK, THATS WHAT I AM TRYING TO AVOID.

ANY IDEAS?

virmon said:

ANY IDEAS?

Click to expand...

No. Maybe you have some pointers???

It's not actually arbitrage you are doing (as that implies that you are pretty much guaranteed to be filled on the limit order third leg of the trade).

If you were executing all three legs simultaneously that would be what is known in FX as 'triangular arbitrage', but then pros have access to better technology and better pricing, and are already fully automated on this stuff at millisecond latency type speeds. Sorry mate, you're about 20 years too late to be doing this stuff manually.

All you are doing is legging into a eurgbp position. And if you look at the rate at which you're legging in, you'll probably find it's marginally worse than just crossing the spread and opening a position in EUR/GBP initially.

If the available spreads in cable, eurusd and eurgbp on your platform are such that you are getting into your eurgbp position BETTER this way than by trading it straight then you may as well do it this way, although ultimately it probably means you're paying too wide a spread in the cross (eurgbp).

If you do do this, the choice of which way round to do it entirely depends on what you think is going to happen to eurgbp in the short term. One of those strategies puts you into a short eurgbp position, with a limit order in to buy back. The other one does the precise opposite. But it isn't some complicated arbitrage play. You're making it out to be more than it is really. All you're doing is trading eurgbp 'through the legs'.

GJ

Arbitrage trading is simply the trading of securities when the opportunity exists during the trading day to take advantage of differences in value between the markets the trades are made within. Arbitrage trading relies on two different disagreeing on the same sporting event. Arbitrage is not to be confused with taking a chance, which carries a danger.Arbitrage Trading has giving extra time, and freedom to do things which couldn’t do before.