Multiple Broker Method?

F

fxPadawan

Is there a strategy involving multiple brokers (at least 2) where the trader benefits from the difference in quoted price and or spread from the different brokers? I thought I heard of such a one (possible in forex), but I just can't grasp how this is possible. Also, if I recall, it seemed to involve the term "scalping" due to the relatively fast turnaround.

For example, if broker1 has bid/ask as 1.2345/48 and broker2 has bid/ask as 1.2349/52 on the same instrument; is there a strategy to profit relatively quickly (perhaps even if there is no price movement)?

I don't see how because if you open a position with broker1, you still have to close it. You can't say, buy at broker1's price and sell at broker2's price and profit; one must still close out each position -- or is there such a method that does start with a similar approach?
 
Sounds like you're referring to arbitraging. To do this successfully, you'll need to find one broker price is lagging the other with a difference in prices of more than the total spread incurred.

For example:
Broker1 has Euro bid/ask as 1.2345/46
Broker2 has Euro bid/ask as 1.2349/50

So, one can long with Broker1 at 1.2346 and short with Broker2 at 1.2349, which would give a net exposure of almost zero. Then, when price at Broker1 has caught up with that of Broker2 at 1.2349/50, the positions are then closed with a net profit of 2 pips.
 
Thank you for the term. Yes, that is what I meant (essentially different markets).

So if they ticked in step (no lag?), even with the difference in price, there is no arbitrage method?

Now to google more...
 
hmm on a similar note:

how does intermarket arbitrage work in stocks? can you buy on an exchange and sell on the other? or can you only buy the "cheaper" one and hope the prices converge?
 
I'm glad you asked. You made me adjust my plans.

I don't think you have to wait for convergence at all in the stock market. (But I am wondering if that is the only multi-market arbitrage strategy). If you can buy from one market and sell to the other (or vice versa), then you are done.

In FX, an entry is both a buy and a sell, then you need an exit which would be a sell and a buy (or vice versa respectively).

In stocks, an entry is only a buy or only a sell; and the exit is only the sell or the buy.

DISCLAIMER:
The fxPadawan is an all market padawan. Not even a single live penny earned or lost.
 
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