How do I use software to make arbitrage trades?

Traders use software programs to detect arbitrage trading opportunities they can take advantage of for potential profits. Three kinds of software programs commonly used for arbitrage trading are automatic trading software programs, alert programs and remote alert programs.

Arbitrage trading seeks to profit from temporary market inefficiencies that result in mispricings of the same asset in different markets or at different brokers or similar assets in the market. Arbitrage trading actually helps to quickly correct such temporary pricing inefficiencies, bringing prices correctly back in line across various markets, brokers or different forms of the same financial asset or instrument. The temporary imbalances that form the opportunities for arbitrage trading ideally present a trader with the opportunity to make simultaneous buy-and-sell trades that lock in a small profit resulting from variations in pricing.For example, in the forex market, there may be a slight temporary discrepancy between the exchange rate for EUR/GBP and the two currency pairs, EUR/USD and GBP/USD, that can enable a trader to profit om simultaneously selling EUR/USD and buying EUR/GNP and GBP/USD. Another example of an arbitrage trading opportunity occurs when different brokers offer slightly different bid-ask spreads that give a similar opportunity to obtain a small profit by simultaneously purchasing an asset at one broker's lower quoted price while selling it at the other broker's higher quoted price.
Forex Trading Mantra: Forex News

Since arbitrage trading opportunities generally only exist for a very brief period of time, often just a few seconds, it is too time consuming for traders to do arbitrage calculations on their own. Therefore, traders use a variety of software programs that can instantly detect and calculate arbitrage opportunities. One type of software program employed by arbitrage traders is automated trading software. This kind of software is loaded onto a trader's brokerage trading platform, and whenever the software program detects an arbitrage opportunity, it instantly initiates the required trades on the trader's behalf. This type of program is designed to overcome one of the primary challenges of arbitrage trading: the timely and accurate trade execution necessary to take advantage of trading opportunities that may only exist for a few brief seconds.Traders who are not comfortable with having trades automatically executed, preferring instead to make all final trading decisions themselves, use what is known as trade alert software. Like automatic trading software, trade alert software constantly scans different markets, instruments and brokers for arbitrage trade opportunities. When it detects an arbitrage opportunity, rather than executing the trade automatically, it merely signals an alert of the opportunity to the trader, who then makes the decision whether or not to trade the opportunity.

Some traders, rather than running their own software programs, subscribe to a remote alert service. Subscription to the service enables them to receive arbitrage trading opportunity alert signals in the same manner as they would using their own software programs, the difference being that the alert signals are provided by software running at another location outside of the trader's own computer or network.

Institutional traders or market makers have several advantages over retail traders in relation to arbitrage trading, including faster news sources and computers and more sophisticated arbitrage trading software programs. Nonetheless, arbitrage trading remains popular with many traders.

Subscribe to Forex Trading Mantra by Email