triangle arbitrage

Quote from n00b7r4d3r:

would i be wasting my time looking for arbitrage in more complex situations...in forex
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Yes, do the opposite. Look (wait) for less complex arbs in
forex in unusual situations -- high volatility, wide spreads,
huge volumes.

Under these conditions, with less than 50ms fill latency, low
commissions, and consolidated settlement, simple tradeable
arbs exist. Even without the latter, tradable implicit inversions
exist, you just can't move money between accounts fast
enough to take much advantage.
 
The only Arb in FX that ever went on was "Back in the Day" (late 80's early 90's) when you could arb the floor against spot if you were a dealer in a bank and had access to the cash market and had futures on a spreadsheet where you could see where the floor was a bit slow or a big order would go through the cash ... even with this access and the low commission (High by todays standards but low back then) you would still be playing against every other shop on the street and you would risk an ass kicking if you ever went to Chicago and someone found out who you were......as you can imagine locals who got picked off for a few didn't take kindly to this kind of trading.....
 
Quote from Rhody Trader:

And don't forget that not only will you have three pair spreads working against you, you will have three sets of carry rates, and that interest is always going to work out against you as well.
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Re-post the above... please remember the interest rates and the settlement dates.... there's no free money - forget triangular arbitrage. Free money means you are taking money from someone - do you really think the banks are so stupid to misprice something as simple as a cross rate?

Also remember if there's a holiday in a country then any currency pair with that currency will have a delayed settlement - and the interest will be priced in accordingly.....so the "free money" you think you're making in a triangular arb will disapper when the interest hits.

Sorry for the rant.... just tired of having to call people mid-trading and pop their money tree dreams....
 
Quote from Steve_IB:

--do you really think the banks are so stupid to misprice something as simple as a cross rate?...money tree dreams....
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Not misprice, just banks on one ECN quoting wider than
on another. If there is sufficient buy-side action on the
wider ECN you can, for example, sit on the inside offer
on the wider one and when filled, immediately lift the
lower offer on the narrower. On high volatility days you
can see one ECN quoting four wide in EURUSD when
another is quoting one wide. So there is a one or two
pip arb available. Commission, at $15 per 1mio is a little
over $40, or half a pip.

I have attached a screen shot showing Hotspot vs. your
own little ECN from Aug 16. Note the discrepancy. Hotspot
did $50 billion handle that day, and even put out a press
release about it, they were so proud. Even if they were
double counting, that is still a lot of liquidity on the buy
side. How much did IDealPro do that day?

On the 16th, arb opportunties were available continuously
through the US session. A real money tree.


-Kevin

p.s. I guess for some posters, last month qualifies as
"back in the day."

p.p.s. Steve, do you trade forex at all?
 

Attachments

Quote from Kevin Schmit:

Not misprice, just banks on one ECN quoting wider than
on another. If there is sufficient buy-side action on the
wider ECN you can, for example, sit on the inside offer
on the wider one and when filled, immediately lift the
lower offer on the narrower. On high volatility days you
can see one ECN quoting four wide in EURUSD when
another is quoting one wide. So there is a one or two
pip arb available. Commission, at $15 per 1mio is a little
over $40, or half a pip.

I have attached a screen shot showing Hotspot vs. your
own little ECN from Aug 16. Note the discrepancy. Hotspot
did $50 billion handle that day, and even put out a press
release about it, they were so proud. Even if they were
double counting, that is still a lot of liquidity on the buy
side. How much did IDealPro do that day?

On the 16th, arb opportunties were available continuously
through the US session. A real money tree.


-Kevin

p.s. I guess for some posters, last month qualifies as
"back in the day."

p.p.s. Steve, do you trade forex at all?
More...

The original poster was talking about triangular arbitrage - not exchange/ecn arbitrage (which as you mentioned can happen). It's a too common issue that people see free money in the triangular arb due to a different settlement dates with the pairs.

Not sure what our volume was that day.... nice screenshot though.... nice to see our little ecn with a 1 pip spread, and the other one with 3.5 pips - please distribute widely :D
 
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