Arbitraging OANDA continuous rollover vs other brokers' discrete rollover
Arbitraging OANDA continuous rollover vs other brokers' discrete rollover
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user59 · External communityPost link
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Author: user59
Original post: https://quant.stackexchange.com/questions/716
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Most brokers compute rollover once a day (2200 GMT), but OANDA
calculates it continuously.
I thought I'd cleverly found an arbitrage opportunity, but it turns
out OANDA knows about this
and
advertises it. Quoting from
http://www.oanda.com/corp/story/innovations
Professional traders can exploit this flexibility by arbitraging the
continuous and discrete interest-calculation scenarios through two
trading lines--one with an established player, such as Citibank or
UBS, and the other with OANDA. Whenever they sell a
high-interest-rate currency (such as South African Rand) they can do
so with the traditional player, where they will pay no intra-day
interest for shorting that currency. On the other hand, they can
always buy a high-interest-rate currency through OANDA, where they
earn the "carry" (interest-rate differential) for the position,
however briefly they may hold it.
Has anyone done this? I realize the bid/ask spread on both sides would
have to be small, but this still seems viable?
My form of arbitrage is slightly different: hold a high-interest position w/ a regular broker for 1 minute on each side of rollover time, just to get the rollover (for the entire 24 hour period). Take the opposite position w/ OANDA. You'll pay rollover, but for only 2 minutes.
EDIT: Apologies, I never got around to test this. Has anyone else had a chance? I realize oanda.com's higher spreads (which are non-negotiable) may cover the arbitrage.
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Fang Li · External communityPost link
External answer — Quantitative Finance Stack Exchange
Author: Fang Li
Original post: https://quant.stackexchange.com/a/9749
License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/
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There are several things you need to consider.
You need to use a large leverage to make it work, some brokers reduce the amount they pay in this case.
If you use a leverage, there is substantial risk that one side of your trade cannot withstand the fluctuation of the market. So, your balance on one side will turn below required margin at some point and you need to deposit money using the profit you earned from another account. And there is transaction cost which is not a small amount because the cost applies to all of your earned money. Say, you invest 10,000 dollars and use 50:1 leverage, then you lose all your money at one account, you need to withdraw the profit from one broker which is more than 9,000 dollars and move it to the other broker. The cost could be several percent and you need to do it multiple times a year unless you have a low leverage which you would not choose at first place. Or you have a way to eliminate all or most cost associated with transferring funds from one broker to the other (You will also lose some days transferring money). When you do transfer, you need to close both trades and pay spreads. It's a lot of money.
The difference is not enough for you to be profitable at all on oanda since Oanda doesn't have a low interest. It is just rolling over time.
You might want to try some small brokers that pays much. But usually a higher interest pay is associated with a higher spread. And
the small brokers you invest is not secure for you money. If you are
really interested, you can try InstaFX. This is a company with no
regulation. But it pays well on some currency pairs like GBPAUD. But
again don't forget about spread and this type of company sometimes
have commission. (Yes, commission plus spread)
Overall, it's probably not a very good idea to do so and not a long-lasting one. If you can make money this easy, OANDA would have lost a lot of money paying interest and changed their interest policy. They can change their interest rate at no time.
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Quoted from Forex.com.bd-Editorial External answer — Quantitative Finance Stack Exchange Author: Fang Li Source score (net votes, not local likes): 2 Original post: https://quant.stackexchange.com/a/9749 License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/ Adaptation: HTML converted to plain text; contact email addresses removed. There are several things you need to consider. You need to use a large leverage to make it work, some brokers reduce the amount they pay in this case. If you use a leverage, there is substantial risk that one side of your trade cannot withstand the fluctuation of the market. So, your balance on one side will turn below required margin at some point and you need to deposit money using the profit you earned from another account. And there is transaction cost which is not a small amount because the cost applies to all of your earned money. Say, you invest 10,000 dollars and use 50:1 leverage, then you lose all your money at one account, you need to withdraw the profit from one broker which is more than 9,000 dollars and move it to the other broker. The cost could be several percent and you need to do it multiple times a year unless you have a low leverage which you would not choose at first place. Or you have a way to eliminate all or most cost associated with transferring funds from one broker to the other (You will also lose some days transferring money). When you do transfer, you need to close both trades and pay spreads. It's a lot of money. The difference is not enough for you to be profitable at all on oanda since Oanda doesn't have a low interest. It is just rolling over time. You might want to try some small brokers that pays much. But usually a higher interest pay is associated with a higher spread. And the small brokers you invest is not secure for you money. If you are really interested, you can try InstaFX. This is a company with no regulation. But it pays well on some currency pairs like GBPAUD. But again don't forget about spread and this type of company sometimes have commission. (Yes, commission plus spread) Overall, it's probably not a very good idea to do so and not a long-lasting one. If you can make money this easy, OANDA would have lost a lot of money paying interest and changed their interest policy. They can change their interest rate at no time.
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