Are you protected against Latency Arbitrage Traders?

Recently we received an email from one of our customers facing a particular scalping challenge with Latency Arbitrage Traders. That is, they could identify multiple occurrences of B-Book clients trading in opposite directions in the same symbol within the same second and achieved price improvement. After some study from our end and more input from our customer, we soon realised that this trading behaviour is the so-called Latency Arbitrage Trading, which can end up being very unprofitable for the broker.

In modern day trading, traders became familiar with all kinds of tools that allow them to exhibit trading behaviours based on identified trading opportunities, similar to the one above. Such tools that facilitate with Latency Arbitrage Trading are designed to find a price gap which does not usually last for more than a few milliseconds, and place an order. Once the price gap disappears, the tools are meant to close the trade.

Understanding the urgency of the situation and the need for an automated tool to check such trading activity, we quickly developed an alert to capture those risky high frequency trades.

With the help of this newly introduced Alert RP148, you can now receive an email triggered every time this type of trading activity occurs. The Alert will pick up any trader that exits a position and enters another position in the same symbol within the same second. The price improvement (typically the difference between the two prices) will trigger the Alert. This tool will allow the broker to analyse accounts performing such trades and take necessary action.