Cross-currency exchange arbitrage opportunities

[max_imus]

Hey,

I like the idea of Cross-currency exchange arbitrage opportunities and would like to write a program(probably on app-engine) that spots opportunities like that.

Therefore I have some questions to you:
Does a concept exist of an existing program that handles that?
What would be the math that is good to use for that?
Would you expect many or less of oppotunities?
Would you recommend any papers about the topic?

thx in advance!!!

max

btw. I just want to spot the opportunities, so it is not important how much money is in there... if there is eventually any ;P

 

[peter pan]

cross exchange currency arbitrage opportunities?

do you mean that if broker X lists eurusd at 1.3000 and broker Y lists eurusd at 1.3010 and the spread is 0.0003, for example, that you buy at broker X and sell at broker Y?

if that is what you are referring to, may i suggest that you not waste your time and that you try to formulate an actual trading strategy, cuz that aint gonna cut the mustard...

there are too many problems with that strategy..

currency strategy that takes advantage of pricing errors will result in a couple of things happening:

1) one of your brokers, either x or y, will slippage you off into never never land, making said strategy unprofitable.
2) the price at both brokers will rise or drop rapidly, causing one account or the other to margin call.
3) etc, etc, etc..

the best strategy with currency is to:

1) make a firm projection, long or short.
2) enter a stop loss and a take profit.

done.

 

[Lyosha]

Hey,

I like the idea of Cross-currency exchange arbitrage opportunities and would like to write a program(probably on app-engine) that spots opportunities like that.

Therefore I have some questions to you:
Does a concept exist of an existing program that handles that?
What would be the math that is good to use for that?
Would you expect many or less of oppotunities?
Would you recommend any papers about the topic?

thx in advance!!!

max

btw. I just want to spot the opportunities, so it is not important how much money is in there... if there is eventually any ;P

Arbitrage occasionally exists, but capturing it is quite difficult and at this point probably requires some twink hardware that is quite expensive and makes it economically unviable even for the best players in the markets (see: GETCO's last earnings report)

There is no math to it. Which is kind of the problem - it's too easy of a trade to put on... at this point it relies on having absolutely the best hardware and networking. Unless you are at a firm that aggressively invests in such things, you don't stand a chance.

There are no papers. It's X/Y = Z arbitrage... there's not more to it than that.

 

[peter pan]

there are so many different kinds of arbitrage that i cant even imagine how many there are..

max_imus is referring to arb'ing two different brokers against each other, i think, which is a weak strategy, at best.

and then there is the well known triangular arbitrage...

but, to say that arbitrage only occasionally exists is absolutely not correct.

arbitrage situations always exist.

putting your finger onto these opportunities is that which only sometimes happens, ie, we dont know how to spot em.

arbitrage is really an over used word, sorta like how the word quant is overly used..

quant simply refers to a person that figures out mathematically how to turn a profit, pure and simple.

arbitrage is quite simply the alternative to speculative.

a speculator buys some thing with the hope that they can sell it for more than they paid for it.

arbitrage means that we are going to buy some thing for X and even prior to purchasing it we already know where to dump it for X+?

regards.

 

[peter pan]

said another way, it is my opinion that if arbitrage situations did not always exist, the charts would go flatline and would not move.

i realize that the above statment is very easy to debate.

debate me about it, but only if you are currently in profit.

regards.

my work is all about a custom version of arbitrage that is strengthened by the fact that the market is also fully cornered..

note: the audnzd is screaming to go long, but not yet, it still has room to drop.

 

[Lyosha]

arbitrage situations always exist.

Incorrect, arbitrage situations exist rarely, and are very short lived (basically absolute minimum latency that exists between two points).

putting your finger onto these opportunities is that which only sometimes happens, ie, we dont know how to spot em.

Incorrect, arbitrage trades are by far the easiest to spot because they are very simple mathematical (mechanical even) relationships. Arbitrage is transparent and relatively risk-less, and everyone wants it, because it is risk-less. The competition to capture it is massive. As mentioned previously, GETCO damn near went unprofitable trying to capture it.

said another way, it is my opinion that if arbitrage situations did not always exist, the charts would go flatline and would not move.

Incorrect. Bid-ask spreads exist for a reason.

etc.

 

[peter pan]

arbitrage opportunities exists due to imbalances in pricings at different locations.... for any number of reasons these imbalances may or may not exist.

arbitrage is the opposite or inverse of speculation.

if i find widgets for sale for ten cents per pound and i expect that the price will rise to more than ten cents per pound, then i am able to purchase some widgets and speculate on the future price of said widgets and the profitability of my investment in said widgets.

on the other hand, if i find that i can buy widgets for ten cents per pound at vendor A and i KNOW that vendor B will pay to me twenty cents per pound for widgets, i have an arbitrageable situation.

this is not my opinion.

this is not theory.

this is arbitrage.

regarding your comment that bid-ask spreads exist for a reason, this would be true for certain types of arbitrage and not for other types of arbitrage.

my current work takes advantage of two issues:

1) a price imbalance between the currencies of two opposing economies.
2) a hard cornered market between two economies, leaving little or no opportunity for drawdown.

my work is truly as good as i could possibly make it.

do yourself a favor and keep an eye on the audnzd for the upcoming buy position.

it (audnzd) is arbitrageable right now as a long position.

it's price is out of balance.

dont believe me? open a long trade on the audnzd, right now, using approx ten percent of your account's available margin at 50:1 and set your take profit at fifty pips and then just wait.

feel free to show your profitable trading charts, lyosha,

 

[Lyosha]

I don't think I have anything to prove to you.

It doesn't seem like you actually trade... if you're looking for seeding capital there's no one here that can provide it. Plus, you don't seem like a professional...

 

[financeguy]

I trade foreign exchange professionally, have done so for a number of years, and I assure you that this arbitrage opportunity you speak of in AUDNZD does not exist. Sure, maybe you'll buy some here and then maybe spot will reach your take profit 50 pips higher. But then again, what if it goes down? Where is the arbitrage here?

 

[peter pan]

I don't think I have anything to prove to you.

my best wishes to you and your works.

 

[peter pan]

I trade foreign exchange professionally, have done so for a number of years, and I assure you that this arbitrage opportunity you speak of in AUDNZD does not exist.

mr financeguy,

how interesting, i have always wanted to meet a professional 4x trader, and now here you are....

i am not a professional, but instead i consider myself to be a hobbyist at this fe thing, so do feel free to demonstrate mathematically to the crowd why the audnzd is not out of balance pricewise at this time... .

mahalo.

 

[financeguy]

mr financeguy,

how interesting, i have always wanted to meet a professional 4x trader, and now here you are....

i am not a professional, but instead i consider myself to be a hobbyist at this fe thing, so do feel free to demonstrate mathematically to the crowd why the audnzd is not out of balance pricewise at this time... .

mahalo.

I'm not really sure about what you're asking me to do. I think the question is more why is it out of balance in your mind and how do you expect to arb the market?

 

[AndrewChang]

I'm not really sure about what you're asking me to do. I think the question is more why is it out of balance in your mind and how do you expect to arb the market?

if he answers that question, he would be out of a job no?

in all seriousness, there are no arb opportunities... seems like he makes money off of delta from what he thinks is an overreaction.

 

[financeguy]

if he answers that question, he would be out of a job no?

in all seriousness, there are no arb opportunities... seems like he makes money off of delta from what he thinks is an overreaction.

I would agree with that. That just means he's punting on trying to make money off of a little short term mean reversion. That strategy would be far from arbitrage, as you point out, and would bear much more similarity to a strategy consisting of flipping a coin.

 

[Raden Ananta]

First post to this quantnet network. Greeting from Indonesia.

I think how we define arbitrage is very relative depends on how the conceptual framework of thinking we use in market (cmiiw). If Mr. Peter Pan thinks that he knows the arbitrage, I bet he should have put the order in pending order, not through market order. Because APT is not function of time, not time series. He should have known what will happen in market. If and only if he knows.

But, honestly, I do not see any arbitrage there, lol. GBPNZD,NZDCAD, and AUDNZD. Hhhhmmmm, I feel strange if I am able to see arbitrage from these 3 pairs, lol.

Let me know what you think.

 

[stevelaz]

i am using app for my three-point arbitrage. recommended
Currency Triangular Arbitrage - Android Apps on Google Play