Hi guys,
Since brokers have different prices at any given point…can you buy from one broker and sell to another? It seems like such an obvious easy question but I can’t figure out how one would do that since 1 account is tied to 1 broker.
Yes, if you have an IBFX account and an FXCM account you can buy on one while selling on another. I think they can figure this out though I’m not 100% sure on that.
Those two account are just examples.
Do you mean arbitrage? Taking positions from different brokers just to profit off the price difference?
Yes, this is what I mean. Can you elaborate? Is this legal…? How exactly would you go about doing it; when do you close the orders?
Illegal, I’m not sure about. Brokers will find out though and they will close you accounts, maybe not even give you your money back. You’d need two EAs collaborating between each other to know the prices. They also have the speed to execute the orders since it would be very hard for a person to do manually and this is how they catch you. I’d forget about doing it :p.
Well I can program EAs so thats not an issue…why don’t more people do this… or at least use the price difference to reduce the effective spread on their normal trades?
Like I said before. Brokers aren’t dumb. They find the EAs and suspend your account sometimes keeping your money as well. Your not the first to think of this.
Since I don’t know much at all about arbitrage, check here for info:
Oh I know that I’m not the first to think of it 
Its right on the surface.
If the only thing standing in the way is that the brokers are aware of this scheme and would catch me, then I cannot simply drop this.
I am quite adept at … anonymity…so to speak…
I can think of a hundred ways to make it very difficult for them to realize what I’m doing.
The difference of price between brokers is smoothed by the spread. The profit potential from sheer arbitrage is negligible at best, unless you are actively searching for stop hunting scenarios by shady brokers.
I assumed this was the case. However, arbitrage can be combined with a normal strategy to lower the effective spread - no?
in theory, yes.
Most retail traders call this “lag trading” and actually consider themselves “victims” when this type of trading is done. If they decide you are lag trading they will close your account and take all profit giving you back only the initial deposit and call you a cheat.
Unless you have a lot of capital, doing this type of arbing (if you can beat the spreads at all) isn’t going to be all that rewarding.
As for lowering your spread, consider this. Say you go long through the broker with the lower offer rate, then “close” the position by going short later with another broker at the higher bid rate. You’ve probably shaved a bit off the cost of your trade, but now you have two open positions. Granted, you’re flat when netted out, but if you stay long and short for any period of time (some folks call this “hedging”) you’re going to slowly bleed your account because of the carry cost. You could maybe make this sort of thing work if you’re in and out frequently and don’t get yourself too far long in one account and short the other because then you’ll have your margin all sucked up.
What I dont understand, even if this was profitable, why anyone would think doing this would be easier than actually just trading?
This technique is not new and many people already tried.
The theory is working, you can trade with demo account and earn lots of money.
But for real trading account, it is different story.
Many broker house know about this and they are not stupid.
Real trading account server are getting price feed faster and many prevention mechanism in place to prevent this such as re-quote, delay in order execution, increase spreads…etc.
Trust me, your broker can and will detect you sooner or later or have ways to prevent this.
Possible ways to hide under radar if you can find broker with real account that have opportunity for lag trading-
1-You are trading with high capital account but willing to take small win. eg with $50,000 account but only win $5,000 - $10,000 each month.
2- Mixed with other trading methods to hide those lag trading trades.
3- Do lag trading on random day.
4- Hedge the position and close them after 1 day or at next lagging opportunity.
5- Withdraw your money + winning fast enough before detected.
However, do expect to spend lots of energy and time on this game.
Also, do remember that you are playing against brokers, your odd to win is quite slim.
If you are detected, you either loss all your money or getting back your initial deposit unless you withdraw your deposit + winning fast enough.
Overall, many find this method is not rewarding at all.
I know real people (a customer of my friend) who earn and withdraw big money trading with this method but have their account transfer to ECN markets (fast price and frequent spreads changing) where this method is not working effectively.
Also, be aware those claimed to win big money with this method with real account as they are getting your money by selling high priced EA after gang up with broker house. Their real account is specially “tailored” to win.
If you do not know yet, broker have super power feature to adjust individual account settings (margin requirement, spreads, order execution…etc).
Good luck in your quest. 
Thanks for the detailed response johnmigiting. I guess this sort of thing is not possible to test in a demo account. A question - why would I have to hold the position for a long time? Shouldn’t I be able to close it immediately?.. Or do I have to wait for the prices to switch (the other broker now having the higher price)?
The reason to delay closing is to stay under radar. It is too obvious if you complete your trades transactions (close trade) too fast, eg. within a few seconds.
You need to test the technique using demo account first. Trading in real account before knowing your method works is just financial suicide.
Hope this answer your doubt.
It’s definitely possible to make arb trades on a practice account, I can tell you that for sure. Live accounts have shown to be another story.
@java guy, you are right. Arb trades work great with demo account and it is almost impossible now to win this game in real account unless you want to spend tons of energy and effort into developing your own arb robot and declare wars with different brokers.
Anyway, i won`t surprise if there is someone who swipe real money from forex market quietly using own customized arbs robot and play hide and seek with brokers.
Perhaps, it might be the broker themself?