Usage Statistics of 2-Legs Latency 1 Arbitrage Bot

When analyzing the effectiveness of an arbitrage strategy, it’s important to consider a variety of statistical indicators. Here are some of them:

1. Trade Frequency

• The number of trades over a specific period.
• Trade frequency helps understand the strategy’s activity level and its ability to generate trading opportunities.

2. Average Profit/Loss per Trade

• The average profit and loss per trade.
• This indicator helps assess the strategy’s risk-reward ratio.

3. Percentage of Profitable Trades

• The proportion of profitable trades out of the total number of trades.
• A high percentage of profitable trades indicates the reliability and stability of the strategy.

4. Average Holding Time

• The average duration that positions remain open.
• This indicator is important for understanding the strategy’s time horizons and risk assessment.

5. Maximum Drawdown

• The largest decline in account equity from peak to trough over a specific period.
• Analyzing drawdown helps evaluate the risk level and the strategy’s resilience during adverse market conditions.

6. Risk/Reward Ratio

• This ratio measures the strategy’s returns relative to its risk. Though we do not calculate anything labeled as a Sharpe ratio, our risk/reward ratio is very similar to it.
• A high risk/reward ratio indicates an efficient strategy with good returns for a moderate level of risk.

7. Profitability by Trading Pair

• Analyzing profitability across individual trading pairs.
• Helps determine which instruments are most beneficial for the strategy.

8. Profit-to-Risk Ratio per Trade

• An indicator that compares the expected profit per trade to the potential losses.
• Important for understanding whether the risk taken on each trade is justified.

9. Profit Variance

• The variability in profits across trades.
• Allows for assessing the stability and predictability of the strategy’s earnings.

10. Number of Losing Trades Following a Profit Period

• Indicates how often profitable trades are followed by losing ones.
• Important for understanding the strategy’s behavior in different market conditions.

11. Moving Average of Profit/Loss

• Analyzes the change in average profit and loss over a moving period.
• Helps identify trends and shifts in the strategy’s performance.

By using these indicators, you can gain a more comprehensive understanding of the arbitrage strategy’s performance and make informed decisions for its optimization and improvement.

Analyzing the effectiveness  2-Legs Latency 1 Arbitrage Strategy

2-Legs Latency 1 is a strategy integrated into the HFT Arbitrage Platform. It can be used on a single account, which works well with prop firms, or on two accounts, which we recommend for working with regular forex brokers. For testing the strategy, we used a regular forex broker, where we opened two accounts. The trading pairs were: XAUUSD, EURUSD, GBPUSD, and USDJPY. The initial deposit on account 1 was $8,100, and on account 2, it was $8,400.

After one week, we made a profit of $12,500 on account 1 and $10,069 on account 2.

By analyzing both accounts, we can see the distribution of the number and frequency of trades depending on the trading instrument. In our case, as shown in Fig. 1 and Fig. 2, the most active instrument was XAUUSD, followed by USDJPY and GBPUSD in terms of activity. The least active trading instrument was EURUSD. This distribution is not constant and depends on various economic events during the given period, but it is also not short-term and can be observed over several weeks or months.

Fig. 1 – Distribution of Order Count by Trading Instrument on Account 1

Fig. 2 – Distribution of Order Count by Trading Instrument on Account 2

To ensure that the account remains active for a long time and that the broker or prop firm does not realize that the trader is using latency arbitrage, the duration of the orders and the size of the order profit are crucial indicators. As seen in Fig. 3, the order duration is quite long, ranging from 25 minutes to 1 hour and 25 minutes, with an average trade length of 35 minutes, which helps to disguise the arbitrage strategy effectively.

Fig. 3 – Average Order Duration in Hours

Fig. 4 and Fig. 5 – Profit and Loss Sizes of Positions

Fig. 4 and Fig. 5 show the profit and loss sizes of positions. We observe that the profit of individual trades can reach up to $1,200 per standard lot. This further helps to disguise the arbitrage strategy and protects your account from being detected by plugins.

Fig. 4 – Profit/Loss Amount in $ on Account 1

Fig. 5 – Profit/Loss Amount in $ on Account 2

Looking at the charts in Fig. 6 and Fig. 7, you can see that the most active and profitable trading instrument at this stage is XAUUSD, while the least profitable and even losing instrument is EURUSD. It’s important to understand that this depends on the time period and market activity for the specific trading instrument during that period, as well as on the broker. Different brokers have different liquidity providers, and for this reason, certain instruments may be more active and profitable than others. This is why it’s important to analyze trading results, and we recommend starting with a small lot size. If you are using two accounts with different brokers, this analysis will be more beneficial. For example, account 1 may be suitable for arbitrage with a specific trading pair, while account 2 may not. In such a case, account 2 can be used only for locking positions, and instead of the 2-legs latency 1 strategy, you can use the 2-legs latency 2 strategy.

Fig. 6 – Profit Amount by Trading Instrument and % Profit on Account 1

Fig. 7 – Profit Amount by Trading Instrument and % Profit on Account 2

The charts in Fig. 8 and Fig. 9 show the cumulative profit on account 1 and account 2, respectively. It is important to understand that rapid profit will attract the broker’s attention. In our case, we will withdraw the funds because the profit was obtained quickly, which is a red flag for most forex brokers.

Fig. 8 – Commutative profit on the account 1

Fig. 9 – Cumulative Profit on Account 1

I hope this article will be helpful to you and assist you in correctly analyzing trading data and selecting trading pairs for arbitrage.

Additional Information:

Risk Management and Strategy Adaptation

Effective risk management is crucial when employing arbitrage strategies. It’s important to regularly monitor the performance of your trading accounts and adjust your strategies as needed. This involves not only analyzing the profit and loss distributions but also considering market conditions and the broker’s behavior.

Diversification of Strategies

While the 2-legs latency 1 arbitrage strategy can be very effective, diversifying your strategies can help mitigate risks. Combining latency arbitrage with other trading techniques such as statistical arbitrage or market-making can enhance your overall trading performance and reduce the likelihood of detection by brokers.

Importance of Broker Selection

Selecting the right brokers is essential for the success of arbitrage trading. Different brokers have varying liquidity providers and trading conditions, which can significantly impact your strategy’s effectiveness. Testing multiple brokers and comparing their performance can provide valuable insights and help you optimize your trading setup.

Regular Performance Review

Conducting regular performance reviews of your trading accounts is vital. This includes evaluating the duration and size of orders, the profitability of different trading instruments, and the overall account performance. By doing so, you can identify patterns, detect potential issues early, and make informed decisions to improve your trading strategy.

Starting with Small Lot Sizes

When implementing a new strategy or working with a new broker, it’s advisable to start with small lot sizes. This approach allows you to test the waters and gather data without exposing your account to significant risks. As you gain confidence in the strategy and the broker’s reliability, you can gradually increase the lot sizes.

Adapting to Market Changes

The forex market is dynamic, and trading conditions can change rapidly. Staying informed about economic events, market trends, and regulatory changes is essential for maintaining the effectiveness of your arbitrage strategy. Being flexible and ready to adapt your approach to new market conditions will help you stay ahead in the competitive forex trading environment.

By incorporating these additional considerations into your trading routine, you can enhance the sustainability and profitability of your arbitrage strategies. Remember, continuous learning and adaptation are key to long-term success in the ever-evolving world of forex trading.