Choosing The Right Broker For Latency Arbitrage Strategy

There are many automated trading strategies out there, however, none other than latency arbitrage trading can be considered to be the most profitable and least expensive automated trading strategy to implement.

What is latency arbitrage

Latency Arbitrage is a very clever automated Forex trading strategy that uses a basic yet highly effective principle to exploit the market and make a profit. It works on the premise that for a tiny fraction of time, there are discrepancies in the price offered by two different brokers. The strategy assumes that the trader will deal with two types of brokers.

A fast broker
A broker that uses a low latency infrastructure and has access to a price feed that is refreshing very fast;

A slow broker
A broker that uses aged or poor infrastructure and the price feed does not refresh as fast as the fast broker.

Latency arbitrage checks for prices on the fast broker and places a trade on the slow broker. Here’s an example of how it works in real life:

At a moment in time, the price quoted by a slow broker for EUR/USD is 1.34560. At the same time, the price quoted by a fast broker is 1.34570.

The latency arbitrage software will open a trade with the slower broker at 1.34560. Within milliseconds the slow brokers’ price will catch up to the fast broker (which is the more accurate representation of the real market price) and that’s when the latency arbitrage software will close the trade with a 10 pip profit.

Sounds simple enough… so what’s the problem? Why isn’t this all over the news and why isn’t everyone doing it?

Like always, it’s the broker.

For latency arbitrage to work, you need a broker with the fast price feed. This broker will never receive any trade from you and consequently you could just maintain a demo account with this broker. You don’t care and neither would he.

Its the slow broker that’s your problem.

You see a slow broker does not like the fact that you’re taking advantage of the loopholes within his infrastructure and capabilities as a broker to make a profit. As far as the broker is concerned, you’re not being fair and hence he considers you a cheater and wants to stop you at every cost.

There’s an “anti-arbitrage” plugin out there that almost all the brokers that I’ve tested (more than 153) latency arbitrage with have used to stop me from making money. I have written more about this particular plugin in my article about the dirty tricks used by brokers to deny you this golden opportunity.

Self Promotion

I tried latency arbitrage on more than 150 brokers with different amounts using LMAX and CQG as my fast feed brokers. It worked amazingly well for a few days and then as soon as the broker caught onto this, he started delaying my execution and increasing slippage etc. I believe in this strategy and I know that it can work really well, given the right tools and the right broker.

It is for this reason that I decided to open my own brokerage to first use it to trade with my latency arbitrage strategy for my own financial success and at the same time allow other traders to take advantage of the same. In the context of latency arbitrage, Manhattan Global markets is the slower and more friendly broker. I welcome you to try your latency arbitrage strategy on our brokerage – feel free to drop me an email to discuss the best way for you to trade using latency arbitrage.

About
I've been involved in Commodities Trading for over 12 years now. I have worked at various banks in the UK as well as in France during my career trading commodities at the desk as well as working with large fund managers at an analyst level.

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