Risk Free Arbitrage

Discussion in 'Automated Trading' started by megaman, Jun 11, 2012.

  1. megaman


    Would it be realistic to net $100/day looking for and exploiting small time risk-free arbitrage situations with mispriced securities using IB? I would give it a try in a Margin IRA. I have a programming background, and I just learned about put-call parity and other types of arbitrage.

    1. Would I be able to find these situations and exploit them as an at home algo trader or would all the big HFT shops beat me to the gun every single time?

    2. Would IB even execute a combo order that gave me a risk-free profit?

    I'm sure I misused some terms and came off as ignorant in general there, but no need to take it easy on me. I don't want to waste my time if this isn't realistic at all.
  2. No. Market is more sophisticated than that. You need either a technological or structural edge to find such opportunities.
  3. No, not realistic for the following reasons:

    1) IB limits you to 100 symbols. Even with only a few underlyings, you will quickly reach that limit. To find arb oportunities, you'd have to screen a far broader universe of symbols.

    2) Arbitrage opportunities are fleeting, often lasting only a fraction of a second. IB's aggregated feed has considerable latency, as does it's order entry system (even via API); by the time your order hits, the arb is gone.

    3) You'd want to try executing the mis-priced leg of the arb first and you'd be filled on very very few of them. So you'd rack up excessive cancel fees.

    You can try running what are essentially half-arbs or time-arbs against the complex order book. See the remote market making thread in the options forum. That is your best bet. In fact I am surprised that that thread was even posted.