Arbitrage is an investment strategy in which an investor buys and sells an asset in different markets at the same time in order to profit from a price difference. While price differences are typically small and transient, the returns can be substantial when multiplied by a large volume. Hedge funds and other sophisticated investors frequently use arbitrage.
There are several types of arbitrage, including retail arbitrage, statistical arbitrage, and convertible arbitrage. Retail arbitrage is used to buy and sell physical products such as those found on eBay or Amazon. Buying a convertible security and then shorting the underlying stock is referred to as convertible arbitrage. Then there’s statistical arbitrage, which uses complex mathematical formulas to trade markets programmatically in order to profit from even minor price differences.
Let’s look at some forex brokers which allow arbitrage trading.
FP Markets is a global Financial Technology services forex and CFD broker that was founded in 2005. The Australian Securities and Investment Commission (ASIC), and the Cyprus Securities and Exchange Commission (CySEC) oversee its activities.
FP Markets offers CFD trading in Forex, Indices, Shares, Commodities, Metals, Digital Currencies, Bonds, and ETFs in addition to Forex. FP Markets provides a variety of trading platforms, including MT4, MT5, Iress, Webtrader, and Mobile App. As a caveat, FP Markets supports Trading Central for market information and technical analysis. Standard and Raw accounts are available at FP Markets where the minimum deposit to open an FP Markets account is $100. It has consistently low spreads starting at 1.3 pips on the standard account. Clients looking to trade with ultra-low spreads can use the Raw ECN account with spreads starting from 0.0 pips. Other applicable fees include overnight swap fees and commissions on the Raw ECN account.
Arbitrage is supported under algorithmic trading with FP Markets. This is where one can profit from the difference in market prices by taking advantage of the price difference between multiple markets. Because forex price differences are measured in micro pips, traders may need to invest in large positions to achieve this in the forex market.
75.3% of retail CFD accounts lose money
IC Markets is one of the market-leading global online retail trading providers. It is overseen by top-tier regulators such as ASIC, CySEC, and the FSA. IC Markets offers three account types Raw Spread (cTrader), Raw Spread, and Standard. The minimum deposit is $200 and spreads start at 0.6 pips on the standard account. It provides several platforms for trading, including MetaTrader 4, MetaTrader 5, and cTrader. It supports the trading of CFDs on forex, stocks, commodities, futures, bonds, and cryptocurrencies.
It supports arbitrage strategies that seek to profit from price differences between highly correlated assets. Because price differences in the foreign exchange market are so small, large positions are required to generate profits. Within this broker, triangular arbitrage is a popular technique.
eToro is a social trading and multi-asset investment platform under the regulation of the FCA, the CySEC, and the ASIC, among others. The minimum deposit amount is $50 in most countries. However, in the UK and the US, the minimum deposit is $10. It provides over 5,000 instruments from various asset classes, including stocks, cryptocurrencies and CFDs on stocks, indices, ETFs, forex, commodities, and crypto. Spreads for major currencies are typically as low as 1.0 pips.
Arbitrage Trading is one of the supported strategies on eToro, along with Value Investing, Growth Investing, Swing Trading, the 130-30 Strategy, and Parabolic SAR. You should learn about the strategies because the more you know about the available strategies, the better prepared you will be to face the markets.
81% of retail investor accounts lose money
when trading CFDs with this provider.
Offer differs for US customers
AvaTrade is an internationally licensed online CFD and forex broker dedicated to providing a safe trading environment to traders all over the world. It is regulated by the CySEC, ASIC, the Central Bank of Ireland, and the FSCA.
The minimum deposit to open an account is $100. Some of the instruments available include Forex and CFDs on Forex, Equities, Commodities, Bitcoin, Indices, and Options. AvaTrade provides a variety of platforms, including WebTrader, AvaTradeGo, MT4, and MT5. Has competitive spreads beginning at 0.9 pips. AvaTrade allows you to trade arbitrage using the Triangular Arbitrage strategy and the Statistical Arbitrage strategy.
71% of retail CFD accounts lose money
XTB is one of the world’s biggest Forex and CFD brokers in the world. It is overseen by several regulatory bodies, including the FCA, the CySeC, and the KNF. XTB offers two different account types, Standard and Pro. There is no minimum initial deposit. This broker’s spreads start from 1 pip on the Standard account. It provides two platforms for trading, xStation and xStation mobile. XTB allows trading on numerous global markets, including Forex, Commodities, Stocks, Indices, cryptocurrencies, and ETFs.
Market-making and statistical arbitrage strategies are legal trading strategies with XTB. Statistical Arbitrage is capitalising on the price difference of an instrument caused by aberrations in the relationship between two instruments.
RoboForex Ltd is a financial brokerage firm regulated by the International Financial Services Commission Belize, the Financial Services Commission, and the CySEC. It provides Forex, EFTs, and CFDs on stocks, indices, ETFs, commodities, metals, energies, and cryptocurrencies as trading instruments. Popular platforms include MetaTrader 4, MetaTrader 5, and cTrader. There are four types of accounts; Prime, ECN, R StocksTrader, ProCent, and Pro. Traders can enjoy these accounts with spreads starting from as low as 0.0 pips and others with spreads starting from 1.3 pips. The minimum deposit is $10. It allows for statistical arbitrage and latency. The goal of arbitrage is to profit from receiving data quickly.
Admirals Markets is a trading platform for trading currencies, among other instruments. It is regulated by the ASIC, the CySEC, the FSCA, and the FCA. You can trade using popular platforms such as MetaTrader 4 and MetaTrader 5. The type of account you will use is determined by these platforms. MetaTrader 4 can be used to access Trade.MT4 and Zero.MT4. On MetaTrader 5, you can choose from three accounts: Trade.MT5, Invest.MT5, and Zero.MT5.
Other than forex there are also CFDs on stocks, indices, and energy. Invest.MT5 requires a minimum deposit of 1 USD. Average spreads for major currencies start as low as 0.6 pips. Some of the well-known arbitrage trading software programs that are widely used in the Forex community for arbitrage trading in Admiral Markets fall into three categories. These include alert programs, remote alert programs, and automatic trading software programs.
Arbitrage allows a trader to profit from price differences in assets, but it requires speed and constant attention to the market. Prices in the financial markets usually correct themselves quickly. As a result, you will need to act quickly to capitalize on these trading opportunities.
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