Quote from WinSum:
This recent turn of discussion to Arbing the price differential is getting interesting.
It seems that there are 2 rules that are relevant to trying to Arb between two different fx firms.
The first rule is that an open position at one fx firm is non-tranferrable to another fx firm. This is an impediment to arbing.
The second rule is that we get charged a rollover fee if we don't settle a position within 2 business days. This implies that there is a delivery and settlement process for a position.
Hypothetically Speaking, let's say I get a quote from
Saxo: EUR/USD high 1.1382, low 1.1310
Refco: EURO/USD high 1.1386, low 1.1304
Is the following transaction allowed ?
I go Long the EUR/USD @ 1.1382 at Saxo and go Short EUR/USD @ 1.1386 at Refco. Instead of closing the position or electing to roll it over at Saxo, I instruct them to deliver the Euros and wire the Euro to either a bank or directly to Refco. Unlike most of fx customers, I want to take delivery of the position.
For the sake of simplicity, let use 1 mini lot as an example. I bought 10,000 EURO for $11,382 USD at Saxo. I instruct them to debit the $11,382 USD from the cash deposit in my account and wire the 10,000 EURO to Refco. At this point, I will settle my position at Refo. I will deliver 10,000 EURO to them and they will have to credit my account with $11,386. Giving me an Arb of $4.
Obviously, $4 is not enough incentive to do this transaction. I would need to get a greedy fx firm whose spread is way too wide.
Is the mechanics of this transaction valid or are there rules/roadblocks setup at fx firm preventing me from doing this type of transaction?
Interesting suggestion and in theory you can do it, but many pittfall could meet as:
Saxo seem support in/out in many currencies, but few FX brokers allow it! You can put them in 3 class
i) in/out as Saxo but as mentioned few FX are in this class
ii) some major currencies (usually not exceeding 3 choices) for your in, but only out in U$ usually, sometime you can out in EUR but you have to choose your base currency account (as IB do for stock account) and out in your currency base of your account
iii) only U$ for the most of them.
Some exception exist for the case ii, but few FX give you the possibility of multiple currency for your out, and when it is available, your choice is very limited. I have discussed with many of them, some of them have plan in near future for to allow multiple in/out in many currencies, but no estimated time for it. When this will be available, your tatic could be apply in theory.
