Bucket Shop Arbitrage

Discussion in 'Forex' started by Sodajerk, Aug 22, 2009.

  1. Sodajerk


    This could be exploitable. On the other hand, maybe it's nothing. Usually I follow up these things on my own. In this case however, going public could be a service to the trading community and the industry itself.

    You follow two rigged bucket shop forex dealers who, for some reason (such as your current positions, etc), have a pattern of quoting different prices for the same currency pair. Bingo: arbitrage opportunity, i.e. buy low and sell high simultaneously (with either dealer, respectively) for a risk-free profit.

    This would not be scalping, since only one transaction with each dealer (buying the low quote or selling the high quote) is necessary to lock in your gain.
  2. wow you are a genius!!!
  3. You really thought this through. One small question though: how do you realize your locked gains?
  4. Sodajerk


    Experience would show how to realize the gains. I posted this one before actually trying it, mostly to get it out there and see what others can contribute.

    A couple of off-the-cuff ideas to consider though:

    Wait for the bucket shop quote gap to close on its own. Since the bad guy dealers are (presumably) not coordinating among themselves, the differences between them will fluctuate. Enter the arbitrage during a big discrepancy, exit during a small one. Keep the difference.

    Or place the same stop for both positions and wait for each price to come to you.

    No doubt there are other ways.
  5. do you really expect your hair brain scheme to work?
  6. Sodajerk


    "How do you close the positions from your accounts at a profit?"

    I already mentioned two possibilities. See my previous post.

    "The only way is if the market moved in your direction, so no point in using two brokers."

    What do you mean by "the" market? Your bucket shop brokers are quoting different prices.
  7. Do you really expect to be buying below the market and selling above the market with these bucket shop brokers that you made up?
  8. Yet another intelligent thread here at ET!
  9. Sodajerk


    "Do you really expect to be buying below the market and selling above the market with these bucket shop brokers that you made up?"

    This isn't about "the" market. It's between bucket shops with inconsistent pricing, which definitely looks like an arbitrage opportunity.

    If you disagree, now is your chance to explain why.

    "Explain how you are going to take those 2 pips in the example above."

    You're not necessarily. This arbitrage would not apply in every instance of inconsistent pricing, just some of them: e.g. one bucket shop is bidding a few pips higher than another bucket shop is asking for the same pair. Or perhaps one has a wider spread, etc.
  10. TheRotrader...

    Could you please explain us why it couldn't work... because saying it's stupid without proving your point by at least one argument is too easy...
    #10     Aug 22, 2009