Minggu, 01 Maret 2015

The Arbitrage Methode , Is it work?

The Arbitrage Methode , Is it work?

As a trader , we always seeking a holy grail. Its a journey for us and it is normal . However, longer we are in this trading world, more we realize an holy grail it self did not exist. And we realize only money management that make a system called a holy grail.

However, there is one controversy system between retail trader about a something called "Triangular Arbitrage"

What is arbitrage? Investopedia explain arbitrage as
The simultaneous purchase and sale of an asset in order to profit from a difference in the price. It is a trade that profits by exploiting price differences of identical or similar financial instruments, on different markets or in different forms. Arbitrage exists as a result of market inefficiencies; it provides a mechanism to ensure prices do not deviate substantially from fair value for long periods of time.
And Investopedia explain about Triangular Arbitrage

The process of converting one currency to another, converting it again to a third currency and, finally, converting it back to the original currency within a short time span. This opportunity for riskless profit arises when the currency's exchange rates do not exactly match up. Triangular arbitrage opportunities do not happen very often and when they do, they only last for a matter of seconds. Traders that take advantage of this type of arbitrage opportunity usually have advanced computer equipment and/or programs to automate the process.

Some of them called,we , as retail trader, do not have access into this triangular trade because quote lag, or broker problem

And some of them tell us , its work,

To understand Triangular Arbitrage , allow me to give a simple example.

We know if


Triangular arbitrage arises if:
GU x EG is not the same as the price of the EU at the time

Entry Rule: 

If the EU > GBPUSD x EURGBP with different of at least 12 pips 
then we open trades: EU buy, sell EG, & sell GU

If the EU FC < GBPUSD X EURGBP with different of at least 12 pips                                  
then we open trades: EU sell, buy EG & buy GU

We will not open trades if the difference is less than 12 pips

Lot which is used in the this trading system for each currency: 
EU = 1  lot (mini, standard)Example 0.10 or 1.02. 

EG = GBPUSD price at the time (mini, standard) 
Examples GU price 1.6381 then we open 0.16 or 1.633. 

GU = EURGBP Price at the time (mini, standard)
 Examples EG price 0.7210 then we open 0,07 or 0,72

Exit Rule 

there are 2 options: 
1. Take Profit with the following calculation: the difference in pips (ex: 12) - the total spread of the three currencies (ex: 8 ) = profit (4) x lot (1) = $ 40

2. Exit when the price is price is stable again (EURUSD = GBPUSD x EURGBP)

Sample Case:  
The price on the chart are:
GU 1.6381, Spread 3
EG 0.7210 , Spread 3

EU 1.1823, Spread 2

then appear triangular arbitrage opportunity, because GU x EG # EU.
EU triangular vale (GU x EG) = 1.1810701
because EU Triangular price  smaller than the EU price at the time  by 12 pips,
then we open trades
EU sell for 1 lot ,
GU Buy 0.72 lot (EG Price at the time 0,7210)
And EG Buy 1.63 lot (GU Price at the time 1.6381)

We will take the profit margin formula pips minus the total spread, ie 12-8 = 4 x 1 lot = $ 40

Oh yeah and i aware if we cant monitor market for 24/7 for a week , so i decide to create an expert advisor to help you guys opening this Triangular Arbitrage methode

You can download the Expert Advisor at here

or you can download MQL4 code here