mechanical exchange arbitrage

Discussion in 'Trading' started by st0ckman, Jul 4, 2002.

  1. does anyone know anything about computer assisted trading. i am interested in a program that would pick up price descrepencies on a individual stock on different exchanges simultaneously buying and selling the security for a few pennies profit? from looking on the net i see it is refered to as exhange or inter-exchange arbitrage. i know this automated computer trading system exsist for riskless arbitrage trades. also, would anyone know of a programer that could be able to develope this.
  2. H2O


    As soon as IB offers the option to toute your order to any exchange direct in stead of only using SMART, it can be done wiwth IB using excel...

    Good luck,
  3. i don't even use ib, but could you please elaborate on how this could be done with excel? it sounds interesting..

  4. rs
    please explain then excel concept
  5. trdrmac



    That is the type of program you would have to write and implement yourself. This is one of the few computerized trading methods that work, and people just don't sell them. There is a lot of competition in this area, and as people become more computer savvy the profits will become less and less.
  6. what do you think the best avenue is to get involved in this? you seem to know of people doing this? please let me know.
  7. trdrmac


    Personally I don't know anyone who does this, just what I have read over the years. My suggestion if this is what you want to do would be to seek out a hedge fund or investment firm that specializes in Arbitrage. Try to get hired on as whatever they need to hire and learn from that. Barrons magazine has quarterly reviews of hedge funds, that may be a source of leads.
    There is also a book called "The Predictors" by Thomas Bass that describes some of the problems associated with computer models. It is a storyline as opposed to a how to.

    The other step to consider is learning to program yourself. The reason I say this is if someone has a truly automated model for trading, they are not likely to divulge the secrets or ask for help.

    Finally, if you are good at analysis the after hours trading markets provide the greatest inefficiencies. You may be able to come up with a manual approach that suits your needs. But the lack of liquidity makes "risk free" profits quite unlikely.

    For instance, company X warns on earnings, you may be able to hit a stale bid if you are fast. Or if a company is taken over you may be able to buy quickly before the pack.

    I would spend a few weeks during earnings season watching the after hours market on CNBC. You will see just how quickly the markets adjust to inefficiencies. And then watch the stocks open the next morning, you may find it is harder than it looks.

  8. mac,
    thx for the detailed response. the after/pre market inefficiencies or whats know as gaps off the open is something i have made allot of good trades on. however, i feel this style has limited opportunities in the present market. big gaps are rare now. big gap ups - very rare. i am interested in lets say ibm trading on the nyse at one price and another exchange at the different price. the computer identifies this, and buys and sells the stock at the same time on both exchanges.
  9. Without getting into details, this is being done by many sophisicated traders nationwide. Everyone on this board is way too late and IB's setup would probably not be fast enough. You need FIX executions in 250 ms < or less to even have a chance to compete. Since traders are doing these arbs already and ECN's are merging, the game is over!

    Gene Weissman
    Lieber & Weissman Sec., LLC
  10. nice to meet you. thank you for your insight, i have always loved computers and was wondering if this is possible. i doubt however the game is over.
    #10     Jul 5, 2002