IN PURSUIT of high profits, traders sometimes use tactics that don’t align with brokers’ terms and conditions and are, therefore, forbidden.
This article breaks down arbitrage—one of the oldest and most popular tricks in the book for retail traders seeking to break the system, yet a tactic that never pays off.
What’s arbitrage in trading?
Arbitrage is a tactic where traders attempt to exploit discrepancies in an asset’s price across different markets or platforms to make a risk-free profit.
Arbitrage relies on various pricing inefficiencies and is typically executed by high-frequency traders. The conditions for arbitrage typically occur in the following situations:
- broker’s technical issues
- liquidity provider’ technical issues
- pricing latency.
One type of arbitrage that occurs particularly often is the so-called ‘latency arbitrage’. This tactic involves traders trying to take advantage of the time delay between the price feed of different brokers to make a profit.
This time delay, also known as latency, can occur due to various factors, such as the distance between the broker’s server and the trader’s computer or network congestion.
However, these days, dreams of making easy profits with arbitrage never come true as brokers can quickly identify and block suspicious transactions, rescinding the profits made in violation of the non-arbitrage principle.
Nowadays, most brokers worldwide have specific procedures in place to prevent or revert arbitrage trades.
The consequences of using arbitrage for traders
Most brokers are well aware of the arbitrage-related risks and consider this strategy a form of market manipulation.
Therefore, traders who aim to use it need to take into account the risks and potential legal implications of this precarious tactic.
The implications of arbitrage usage for traders always include rescinding the profits made using this tactic.
If clients persist in using this forbidden strategy, a broker can go as far as banning their accounts and blacklisting the user so that they will have a hard time registering with another broker and passing the KYC.
In the most radical cases, the repercussions can be quite severe, up to lawsuits. Consequently, arbitrage is not a valid tactic for anyone who aims at legitimate and consistent outcomes.
Many traders argue that it is unethical and unfair to exploit the time delay between price feeds. Others consider it a legitimate strategy that is simply taking advantage of market inefficiencies.
Regardless of their view on the matter, those deploying arbitrage strategies need to be aware that major brokers like Octa, FBS, Exness, and XM have an array of tools at their disposal to detect this behaviour and take the appropriate steps in accordance with the industry practices.
Conclusion
For most traders, the journey in the financial markets is full of ups and downs. And yet, using shortcuts to achieve financial success rarely helps.
This is certainly the case with employing shady tactics and manipulations like arbitrage trading.
While pricing inefficiencies still sometimes occur despite the technical advancements of the e-brokerage industry, brokers are now perfectly positioned to rescind the profits that violate the rules and take measures to stop such violations on the part of the client in the future.
Overall, the serious risk of repercussions for traders who use arbitrage vastly outweighs the possible benefits. —Apr 14, 2025
Main image: Octa
