Triangular arbitrage

bigspeculate said:
Didn't Long Term Capital Management blow up when the correlations it traded went awry, during the Asian currency crises?
More...

In some sense yes, although at there size there were other issues related to market impact by other groups in that trade ect. Also, if they could hold down those positions (from a capital perspective) they would have been right eventually.
 
There are so many arbs now, and willing to take .0000001 cent profit, that I'd suggest looking at an anti-arb trade for opportunity.

When you make your first million, let me know.
 
SoesWasBetter said:
There are so many arbs now, and willing to take .0000001 cent profit, that I'd suggest looking at an anti-arb trade for opportunity.

When you make your first million, let me know.
More...

Keep in mind that all the work to trade (hence remove) these arbs does improve market quality. It's certainly a good thing that people are willing to take down such small margins
 
quant1 said:
Few points:

- triangle arb is a "hard" arb. This means that it is truly risk free (provided one can get exposure while the mispricing persists). To get exposure, one needs to be very very fast. In my experience my best guess is the fastest players are shooting orders in single digit micros (maybe sub 1 micro). Milliseconds are an eternity compared to these times.

- a soft arb is something akin to stat arb or pairs trading. These relationships are less stable and statistically risk free. If the correlation blows out you can lose money. These tend to be less latency sensitive and have lower alpha (due to higher variance)

- cointegration and correlation exists on many time scales. However, the trade off tends to be variance as time increases. If you are interested in trading longer term stat arbs, transaction costs and modeling/cash management are key. I think equities have the most robust set to look for these relationships. Many also have options to create synthetics that have better leverage properties.
More...

Out of curiosity...

Other than on CME (FX futures), where are they doing textbook triangular arb that quickly (necessitating tick to wire of single digit micros)?

I mean...of course they're able to, but since the spot fx world is drastically slower than futures/equities, where are they able to really capitalize on the speed advantage?

Even some of the venues which had been conducive for faster players (ebs), have been implementing mechanisms to level the playing field as it related to speed.
 
stevegee58 said:
LOL it's very, very safe. You end up in a position where you're essentially flat.
More...
The forex folks have convinced themselves that being short and long an identical position is "arbitrage", probably what mr. ForexGrowth is thinking of.
 
You must log in or register to reply here.
Back
Top