In this article, I will describe in detail the algorithm of work of all arbitrage strategies built into the HFT Arbitrage platform.
Latent Arbitrage built-in strategy
This strategy is based on the difference in quote speeds of different brokers due to justified technological delays. The program compares the quotes received from the source of fast quotes (fast feed) with the broker’s quotes. If the fast feed price is higher (lower) than the broker’s price, a buy (sell) order is opened, and a trailing stop is applied to the order.
The trailing stop helps to increase profit and order life span.
Frequently asked questions about latent arbitrage built-in strategy
Q. Can I install the latent arbitrage program on my home computer with a fast internet connection?
A. The program should be installed on a fast VPS intended for high-frequency trading like https://ultrafxvps.com or https://beeks.com.
Q. Do I need to choose a VPS in New York if my broker is in London to increase the delay?
A. No, it’s the other way around. You need to choose a VPS in the same data center where your broker’s server is located. Preferably, the VPS provider should have a cross-connect with your broker.
Q. Do I need to open two accounts, one with a fast broker and the other with a slow one, to use the program?
A. No, you only need to open an account with a slow broker. We will provide free access to fast quotes in New York, London, and Tokyo.
Q. Should I ask my broker if I can use latent arbitrage?
A. No, we recommend not disclosing to the broker what strategy you plan to use. Otherwise, it will lead to the fact that latent arbitrage will not work, as the broker will immediately apply plugins against you.
Recommendations for using the latent arbitrage strategy
We recommend applying latent arbitrage for trading in the cryptocurrency market. 2-Leg Latent 1 – 2-Leg Latent 3 These strategies are variations of latent arbitrage but have more complex algorithms that help to mask the arbitrage strategy from the broker. In some cases, we recommend using the program in the forex market.
2-Leg Latent 1 built-in strategy
The program compares the quotes of the fast source with the quotes of two accounts. These can be accounts of the same broker or accounts opened with two different brokers. Let’s call them Account A and Account B. If the price of the fast broker is higher (lower) than the price of Broker A (B), the program opens a buy (sell) order on Broker A (B) and applies a trailing stop to it. When the trailing stop is triggered, the program does not close the buy (sell) order but opens an opposite order on Broker B (A).
The program closes in the opposite order when the following arbitrage situation arises. For example, an arbitrage situation arose and the price at the fast broker became higher (lower) than the price at Broker A (B). The program will close the sell (buy) order on Account B (A) and when the trailing is triggered, it will open a sell (buy) order on the other account i.e., on Account A (B). In this case, the trailing stop is applied to a non-existing “virtual order” to buy (sell). The concept of a virtual order helps to understand that instead of opening a new real order, we close an order opposite to the direction of the arbitrage situation, and to understand when we should reopen it, we create a virtual order in the direction of the arbitrage situation in the program’s memory and apply a trailing stop to it.
Frequently Asked Questions about the 2-Leg Latent 1 Strategy
Q. Do I need to open two accounts with the same broker, or can I open an account with different brokers?
A. You can open two accounts with the same broker but need a relative or partner to open the second account for you. The accounts need to be opened from different computers so that the accounts have different IP addresses. Also, when checking account balances or just monitoring them, they should be opened on different computers. We do not recommend checking accounts from one mobile phone. Accounts should be opened within a time interval. For example, if you opened an account today, opening a second account in a week is best. Working with such accounts should be done through the IP Changer program. If you open accounts with different brokers, such precautions are unnecessary. Please also read this article…
Q. Can I use the strategy on one account?
A. Yes, but we recommend setting up in this way only if you are going through a contest in a prop firm.
Recommendations for Using the 2-Leg Latent 1 Strategy
We recommend this program for trading in the forex market and passing contests in prop firms. In this case, the strategy can be used on one account.
2-Leg Latent 2 built-in strategy
This strategy is also a variation of latent arbitrage and is used on two accounts. The difference is that one account is used for arbitrage trading, and the second only for hedging. The program compares quotes from a fast source with quotes from one account. The second account is used to lock the position. Let’s call them Account A and Account B. If the price of the fast broker is higher (lower) than the price of Broker A, the program opens a buy (sell) order on Broker A and applies a trailing stop to it. When the trailing stop is triggered, the program does not close the buy (sell) order but opens an opposite order on Broker B. When the next arbitrage situation arises, the program closes the order that is opposite to the direction of the arbitrage situation on Broker B and applies a trailing stop to the virtual order (see the description of the virtual order above). When the trailing stop is triggered, the program opens an order on Account B again. The trader can configure the conduct of arbitrage trading only by buy (sell) signals or by both buy and sell signals. In this case, in the absence of arbitrage situations, there will always be two opposite orders open on the same instrument on Account A and Account B.
Frequently Asked Questions about the 2-Leg Latent 1 Strategy.
Q. Can this strategy be used for contesting in prop firms?
A. Yes, such a strategy is perfect for contesting in prop firms as, based on our clients’ experience, profits will accumulate on Account A and if we refer to the example above, Account A would be the account in the prop firm.
Q. When else is this strategy recommended?
A. This strategy is most applicable when Account A has slow quotes, but arbitrage is difficult due to slow execution and slippage, and Account B has fast execution without slippage.
2-Leg Latent 3 built-in strategy
This strategy is also a variation of latent arbitrage and is used on two accounts. We do not fully disclose its algorithm in order not to allow replicating it, but you can read about the general idea in our article.
Hedge Arbitrage built-in strategy
Arbitraje de cobertura is not latent arbitrage, although most orders are opened due to quote delays. In hedge arbitrage, a fast feed is not used, and the program compares Broker A’s quotes with those of Broker B. When quotes differ, the program opens opposite orders on Broker A and B. For example, the price of the same instrument on Broker A became higher than the price on Broker B by 10 points. In this case, the program will open a sell order on Broker A and a buy order on Broker B, thereby hedging a profit of 10 points (excluding commissions). Then the program will wait for the opposite arbitrage situation when the price on Broker A becomes lower than the price on Broker B, and when such a situation arises, the program will close both orders.
Frequently Asked Questions about the Hedge Strategy
Q. When do you advise using the hedge strategy?
A. We recommend using a hedge strategy to trade on FIX API accounts. As usually, either account A or account B or both use FIX API accounts. You must understand that such a setup will be more expensive since opening an account through FIX API requires higher initial deposits.
Frequently Asked Questions about the HFT Arbitrage Platform in general.
Q. What platforms or accounts can I use for arbitrage on the HFT Arbitrage Platform? A. MT4/MT5, cTrader, FIX API, Cryptocurrencies Exchanges like Binance, Kraken, etc…
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