2 Leg Latency Arbitrage


Every experienced trader, with the experience of 10 years or more, has surely noticed how the trading process has changed. The set of instruments, derivative financial assets, as well as methods of market analysis, has expanded. Each one left something behind and introduced new ways of understanding market trends, be that Elliott waves or Williams’ “Trading Chaos”. Some of the publicly available trading systems are still being successfully used. Complex strategies became more understandable and easier to use due to automated algorithms. What was previously difficult to implement, today is easily applied in trading. All this thanks to the HFT trading which allows for such a trade that is difficult for an ordinary trader.

The essence of HFT trading lies in the fast market analysis and performing buy and sell operations automatically with the help of a FIX API broker. Thus, it allows to increase yield and trading result.

HFT is now used by nearly all investment companies and is attractive for its ease to private traders. It is HFT that allows using such kinds of trade which are quite difficult or practically impossible to perform in “manual mode”. FIX API 2 Leg Latency Arbitrage is one of the key types of this strategy.

2 leg latency arbitrage, or as it is also called, “hedge arbitrage” is a kind of arbitrage trade, where at the same time but at different brokers buy and sell positions of the same currency pair are opened.

For reference: arbitration is a trading strategy based on high-frequency trading for deals on speculative positions on exchange rate differences of the same asset (or a derivative), usually on different trading venues.

Performing transactions via FIX API forex broker is a required prerequisite for the successful operation of the 2 leg latency arbitrage.

The operating principle of the 2 leg latency arbitrage

The whole point of this technique lies in its name. The robot simultaneously buys and sells the same asset. This requires two different platforms on which¬† the trading will be carried out. As a rule, these are two different brokerage firms. But what is the point? It’s a kind of a lock, with which it is not possible to either increase profit nor loss.

In order to understand the logic of a trading robot, let’s look at an example.

EURUSD currency pair at one broker has the value of 1.07255, and 1.07250 at the second one. It is these 5 pips that bring the profit. Robot opens the sell at the first broker, and the buy at the second broker. You do not need to define which broker would be “faster” or “slower”, which still has to be done in another form of arbitrage trade, FIX API latency arbitrage.

What are the advantages of the 2 leg latency arbitrage?

 

The key advantage of this type of trading lies in its simplicity. As stated above, you do not have to define which broker provides faster quotations. The dependence on continuous monitoring of the trading specifications of a brokerage company is removed.

The second advantage is that such transactions are difficult to track, because the trade can be held for a few seconds. It may sometimes be difficult for the broker to follow the logic of the operations, because the second part of the strategy is traded at another company. Thus, the broker can not affect the result of a trade.

Trading in the financial market attracts more and more attention due to its simplicity. With the help of the available programming languages for the FIX API – java, C# or python, you can create a full-fledged trading algorithm which would take into account all subtleties of HFT trading. Unrestricted access to any trading site in the world allows you to make transactions from the comfort of your home and turn the algorithmic trading into a source of passive income.

 

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