Arbitration trading is not scalping. Key differences between strategies
There are many trade strategies (https://en.wikipedia.org/wiki/Trading_strategy) that have a short retention period. However, not all of them are scalping strategies. News and grid trade robots are based on this principle, as well as the other algorithms. Fix api arbitration trading also has a short retention period, but it does not apply to variations of scalping strategies.
Today, let’s talk about the key differences between these two trade strategies: arbitration and scalping.
Arbitration trading is based on searching for exchange-rate differences and the commissioning trade transactions towards the divergence of the quotation for the same instrument. Simply put, this algorithm examines the price value of the same currency pair on the fix apiforex market, but on various stock sites. That is, to open a transaction, you do not have to consider the historical movement of quotes or indicator signals, but only the current price value.
For example, the value of USD/CAD currency pair given by one fix apiforex broker is 1.1050, and a second broker gives 1.0995. Let’s say that we know that the first broker is quoted more quickly than the second one. Therefore, you should open the sale at the price of 1.1050, and the second purchase for 1.0995. After these operations an arbitration lock is formed, which guarantees profit. After all, when the first trader’s price reaches 1.0975 and the second one’s is 1.0950, the result of the first deal is +75 points and the second result is -45. The total financial result is 30 points guaranteed. Some arbitration algorithms work on the same principle, for example http://forexzzz.com/product/forex-zzz-lock-arbitrage/.
Scalping strategies are based on indicators and various technical formations. Typically, the algorithm analyzes small timeframes and, if the indicator or signal level is reached, it opens a trade operation with a short level of stop loss and take profit. When quotations reach even a few points of profit, the transactions can be fixed. Such strategies can be based on only one technical indicator.
Algorithm of the scalping strategy consists of an analysis of the quotations at a minute interval and the determining the Bollinger channel to open the transactions on. So when the value of a financial asset reaches the top of the Bollinger Bands technical indicator, a sales transaction is opened. The purchase signal is reversed: when quotes close over the bottom limit, a purchase is opened. This allows many trade operations to be carried out within a single trade session and using only one instrument. If you use a trading robot and use it on several currency pairs, the number of speculative deals increases, which at the same time increases the profitability.
Basing of this, it is possible to distinguish the fundamental differences between the two trading methods:
- The arbitration algorithm evaluates the current value of the quotes and their differences, while the scalping strategies are based on historical indicator data;
- Trading using scalping method is conducted on a single account for one fix api broker. For arbitration trading, it is necessary to have a trade account on two sites;
- Arbitration has simple entry and exit conditions;
- The risk of an arbitration trade strategy could be 0% if opened in a “wide spread”. The scalping strategy may go into the subsidence and so it has higher risks compared to arbitration.
Based on the characteristics and examples described, all similarities between the two algorithms are only speculative position opening, and the other asset analysis algorithm and entry/exit points has different parameters. Using trade robots according to these strategies is also the best option for both arbitration and scalping. Selection of a trading systems depends on the trade preferences of afix api trader.>