Any latency arb with the bucket shops requires you to constantly move funds between the two because in order to keep them from getting on to you, you have to use tricks like those described. Those tricks end up with no net loss to you, but one account will run out of money as the other fills up. And so, the bucket shops eventually figure you out from the rebalancing funds transfers, in my experience.
Out of curiosity, if they find out, what could they do? E.g. can they deem a trade off-market and reverse it or something like that?
They don't usually reverse anything, they just make life impossible moving forward. Mostly they spend weeks "approving" your inbound and outbound funds transfers, which kills the strategy because you end up with one account at 0 in a matter of days. In one case they just fired me saying I was abusing their platform. Which I guess is partly true because you have to either modify the source code of the Java their platform loads in your browser or reverse engineer it by observing the traffic between their app and their server in order to put your code in to take advantage of the latency. It's a lot of work that would be worthwhile if you could run it for more than a couple weeks without them shutting you down, but I was never able to get past my first couple balancing transfers so I moved on.
Interesting. I assume the ones that have a proper API are not the ones that you can arb? Is it always one way, e.g. broker X has cable persistently cheap and you end up using broker B to cover? PS. The whole retail FX business is a mystery to me, that's why I am asking.
In my experience if they have an API they've got enough expertise to use relatively fresh quotes and reject orders if the price had changed even if they hadn't disseminated the new price, at least at the decisecond level I was playing at. It wasn't a mispricing game but a latency game. There were/are some bucket shops that only update their price every half second or even longer. So you went with one broker that had a fast feed and another with a slow feed and when the price difference between the two was big enough as the market jumped around you execute a buy on one and a sell on the other. Eventually the markets would slow down so they'd both go back to matched and you'd close out with a 1 pip profit or you could wait until they were out of sync in the opposite direction and get a 2 pip profit. Rinse and repeat. They all have this thing against "scalpers" so you generally had to wait some time to close out even if you could do so earlier or else you'd get flagged for "scalping" in addition to everything else. During that time it's very possible that the market moves significantly enough that although you're flat overall, one account is down 10% and the other is up 10%. Especially given that you want to lever up as much as you can so you don't have a lot of money sitting at a bucket shop in Cyprus. So after a couple days you usually ended up having to move money from the high account to the low. It was pretty random which was which, based on how the market moved in the time you held the position and which was long vs short, rather than depending on which one was the broker with latency.
Scalping is not allowed? Do they throttle your trading frequency for some reason (why would a broker do that, don't they want trades)?
To call them brokers would be charitable. The type of outfits I'm talking about are the counterparty for all the "trades" and it's more of a casino with the forex market as the random number generator. As a result, they have a casino risk management perspective vice a broker risk management perspective. So if anyone is doing anything suspicious, there's a chance they've figured out a way to get an edge that may exceed the house edge and that's the only way they lose money so they shut it down. The guys that run these things have an idea of what their weaknesses are, so if they see a bunch of trades opening and closing within seconds they know there's a chance they've got someone like me or you on the other end of the line so they shut you down as a precaution, is my guess. Depending on the broker in my experience they either straight up close your account for some kind of unspecified abuse or make it extremely difficult to get what they consider your ill gotten gains out of your account. And just to clarify, these are the bucket shops, not the legit companies like Oanda who in my experience do none of these things act exactly like you'd expect a legitimate broker to act.
http://www.forexlive.com/news/!/fxcm-sued-after-canceling-trades-that-netted-460000-20170718 Found the story I remembered. Even if you beat them they’ll come after you lol. Guess the lawsuit is over him being banned and using his wife’s name, but it says they banned him before for gaming the platform.