For those who have (are) seriously engaged in co-movement analysis of financial instruments (> 2) - page 8
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It is possible to create a synthetic that fluctuates more than the total cost. But for such strategies, the speed of receiving data and executing orders is important.
You mean synthetics like (eurusd/gbpusd)-eurgbp?
Yes, like this. Naturally, you need to correctly recalculate from asc and bid synthetics.
Justify.
Such strategies are one of the real ways to make money on the exchange. That is why they are of interest to more technically advanced participants. Trader with MT (with slow internet, etc) will not be able to compete with them.
If you don't believe me, go and try it :)
Yes, such as this one. Naturally, you have to correctly recalculate from asc and bid synthetics.
Such strategies are one of the real ways to make money on the exchange. That is why they are of interest to more technically advanced participants. The MT trader (with slow internet, etc) will not be able to compete with them.
The platform has nothing to do with it, the discussion is about market analysis, as outlined in the thread title.
The example you gave is trivial high-frequency (based on almost rigid functional relationships), which trade short-term market inefficiencies and which because of this have permanent liquidity problems: the profits grow linearly. Such strategies can be seen among the competition leaders. I am not familiar with such strategies in the most highly liquid market (FOREX).
Stat arbitrage does not necessarily require high-frequency trading. The longer the build interval for a synthetic, the longer the trade is calculated on.
I was thinking something new, I agree with MT, it is unlikely to work, there is an arbitrage engine in the codebase, it is well implemented, but it does not work in practice.
This is new, you just haven't got the hang of it yet. In particular, it may be statarbitrage, but it may be forex arbitrage and not on two financial instruments. Star arbitrage doesn't require particularly good execution as the targets there are non-pips.
The main problem is not in the selection of instruments (it is trivial - say, all pairs involving GBP, EUR and USD), but in the right "loosening" of their perfectly balanced combination ("cointegrating vector"). Already now I see two fundamentally different possibilities for such a disentanglement. But it has to be done wisely and only part of the resulting systems can be called statarbitrary.The platform has nothing to do with it, there is a discussion about the market analysis in the title of the topic.
You can try to arbitrage currencies by submitting orders over the phone. I can even guess what will come out of it :)
I am not familiar with such strategies in the most highly liquid market (FOREX).
Obviously, on forex, these strategies are available to a limited number of participants (and they have no problems with liquidity, because forex - as you said, the most liquid market).
Stat arbitrage does not necessarily require high frequency trading
I agree. But I wouldn't call (eurusd/gbpusd)-eurgbp stat arbitrage.
The longer is the construction interval set for the synthetic one, the farther is the target to be traded.
And the smaller is the profit gained. Not due to the increase of deals duration, but due to the fact that more agile participants have already taken the most profitable orders :)
The biggest problem is not in the selection of instruments (which is trivial - say, all pairs involving GBP, EUR and USD), but in the correct "loosening up" of their perfectly balanced combination ("cointegration vector"). Already now I see two fundamentally different possibilities for such a disentanglement. But it has to be done wisely and only part of the resulting systems can be called statarbitrary.
This is new, you just haven't got the hang of it yet. In particular, it may be statarbitrage, but it may be forex arbitrage and not on two financial instruments. Star arbitrage does not require particularly good execution, as the goals there are non-pips.
The main problem is not in the selection of instruments (it is trivial - say, all pairs containing GBP, EUR and USD), but in the correct "loosening" of their ideally balanced combination ("cointegrating vector"). Already now I see two fundamentally different possibilities for such a disentanglement. But it has to be done wisely and only part of the resulting systems can be called statarbitrary.Obviously, in forex these strategies are available to a limited number of participants (and they have no liquidity problems as forex is, as you said, the most liquid market).
With pure arbitrage between different ECN FOREX-platforms at the time of the news release I am familiar not by hearsay. The liquidity is small there.
I agree. But I would not call (eurusd/gbpusd)-eurgbp statarbitrage.
This situation is described above.
And the smaller the profit. Not due to the longer deals, but due to the fact that more agile participants have already taken the tastiest orders :)
The most important thing for us is to keep the synthetic property (horizontal channel) at least slightly to the right of its construction interval - at Out of Sample.