I've recorded a full days worth of high frequency depth quotes from INET, ARCA and nasdaq level2. I've done some analysis and noticed there are consistently arbitrage opportunities between the various exchanges, however they are quite small. Usually between 0.001 and 0.003 and only last for 2 to 5 seconds. My question is, who takes advantage of these opportunities? Cheapest commission I an find is 0.005 cents/share. Even if I found an offer for 0.001 cents/share it would still be hard to make any money this way. Also, is it possible my data is simply skewed? I timestamp the quotes when I receive them, the timestamp isn't coming from the broker so they might not actually be TRUE timestamps (if such a thing exists). Also, I assume the new SEC trade-throuh rule will completely eliminate this in the spring. true? Thoughts?
My thoughts. If cost of doing business (comission) won't allow you to take advantage of the opportunity (as costs overrun opportunity) - then it's not arbitrage at all. Institutions have a concept with arbitrage, it must be a wide enough margin, for it to be worthwhile/truly probable.
If it's on nyse stocks, be careful. Many daytraders cross the listed markets with ecn's when they know the specialist isn't going to print the price he's showing, usually as a result of seeing a large order come into the book.
That type of arb. used to work well between the ecn's and the nyse several years ago before everyone began to use them. Example: EMC was melting down and would gap a point at a time, often there was time to grab a few thousand shares from an ecn (seconds after he gapped the stock down) and immediately send an order to cover with the nyse. I made a great deal of money doing this in various stocks for a period of time (as did many of my fellow traders). Once everyone started to use the ecn's, these opportunities became few and far between.