Probably absolutely every trader who tried to work in the Forex market knows the principle: not risking high income not to get. Although, to be frank, there are some exceptions to this rule. One of these exceptions is arbitrage trading strategies , thanks to which you can get quite a significant profit with minimal risk. Well, let’s understand what the arbitrage trade is and how it can be used in the Forex market.
So, the essence of traditional arbitrage consists in making a profit due to the difference in prices for the same financial instruments, which are traded on different exchanges. If we talk about arbitrage trading, then its meaning is as follows: when on one exchange the price of the asset rises in relation to the price on another exchange, then they simultaneously sell the asset at the first and buy the asset for the second. At a time when the cost becomes the same, positions are closed and the trader obtains a guaranteed profit. Of course, the difference in prices should be greater than the costs in both markets.
In general, the attractiveness of arbitrage transactions is low risks and guaranteed profits, because the total position remains neutral to the market. If we talk about risks, then, by and large, they are only technical.
How is arbitrage implemented?
Probably, all traders noticed that these or those brokers have quotes at different time intervals, but differ. Of course, this can be used: we are looking for two brokers who have the greatest price difference for an identical currency pair, and between them we organize arbitrage trading. If the prices are different, it will be necessary to open the opposite deals from the first and second brokers. Thus, the scheme of the traditional bipartite arbitration will be implemented.
As it were not there, practice shows that one-legged arbitration is much more profitable. Its main difference is that the transaction is concluded on the side of one broker. The bottom line is that price discrepancies appear due to the fact that at some moments the quotes of the broker lag behind the real value. Accordingly, if there is a leading source of quotations, for example, from another broker, then in the period of price lagging, it is possible to open the position of the lagging broker towards the present price and thereby gain an advantage. Of course, in such a situation it’s useless to open a hedging deal with the second broker.
Of course, arbitrage strategies also have certain drawbacks. First of all, you need to remember that you will have to work hard to find a broker with lagging prices. You’ll have to work hard also when looking for a source in which leading quotes take place.
Among other things, brokers are not welcome this method of earning. Therefore, it is necessary to approach very carefully the process of implementing this strategy, in order not to violate the current rules of trade in any way. Although, in any case, … Read More