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Although the delay looks statistically significant it cannot be exploited for arbitrage as the opportunities are very short lived and are not happening in all cases. The fifth tested broker was PowerOptions Fig. The test was performed on March 20th PowerOption seems pretty accurate in pricing.
There are some small fluctuations in pricing, but no real strange movements, only very short delays and small changes in the deviation curve. The maximum deviation is 1. Figure 6. The sixth investigated price feed is from TradeRush binary options broker. The maximal deviation is nearly 3 pips, but the most important fact is that this difference sustained for a considerable period of time! TradeRush has a strange flow in its pricing for several minutes, starting nearly a pip below MT4, rising to nearly 3 pips above MT4 and then slowly getting closer again.
This is devastating for testing a short term strategy with MT4, since a difference of nearly 4 pips in total, would lead to serious differences in most short term trades. The test of TitanTrade Fig. It is visible that at the beginning there was a negative deviation between TitanTrade and FxPro price feeds of about 0. Such a regular switching seems more like a regular characteristic of TitanTrade price feed, than a random fluctuation. The second curious thing is the very high tick similarity between FxPro and TitanTrade price feeds.
Although the major forex pairs price feeds nowadays are very similar there are always small alterations in the ticks and to see such a high degree of similarity means that it is highly probable the original liquidity provider of both brokers to be one and the same. ConclusionThe obtained results shows that there are serious differences in terms of price deviation behavior of the binary options brokers.
There are few brokers with very stable and consistent price feeds with small and short lasting deviations from the reference price feed. Unfortunately in several occasions we found statistically significant differences between the binary broker feed and the reference mt4 feed, which are happening on regular occasions and in rare cases are really huge. In the case with TradeRush the difference is reaching up to 3 pips and is drifting lower for considerable period of time few minutes.
Such deviations are considered significant because they can lead to false results with MT4 strategy back-testing and also can be potentially caused by the broker intention to trade against its customers or chase their expiry price levels in order to make them expiring out of the money. Although such hypothesis cannot be proved from such small samples, also it cannot be totally ruled out.
As a general conclusion of our research it can be summarize that some binary options brokers have stable and reliable price feeds on the instruments traded and some brokers don't have. The conclusions should be made on a case by case level and more detailed testing is needed before making serious conclusions. However from the presented results it is evident that a potential conflict of interest between the brokers and their customers may be possible.
We base our conclusion on a number of sample tests showing that some binary options brokers show stable in time, statistically significant alteration of the prices, well beyond the acceptable level of random noise fluctuations.
RecommendationsOur recommendation to all binary options traders is to make their informed decision for selection of their broker of choice after testing their price feeds, compare them to reference MetaTrader 4 feeds and use only brokers with highly stable feeds. Also important to understand the difference between the mt4 and the broker to make better trading decisions End matterThe Forex market is very fast-paced market and a currency's value can change multiple times in a matter of a second.
A proper and accurate data feed is the core of each trading platform. Wrong or manipulated prices can be very harmful to the short term traders. Our investigation gives first results showing that the binary options brokers provide very different price feeds in terms of their microstructure and dynamics and in some cases these feeds have stable differences from the reference market price.
Figure 1. Figure 2. Figure 3. This test is a second example after StockPair test for a smooth deviation curve with small and randomly distributed fluctuations, which do not exceed 1 pips in any case. Figure 4. Figure 5. Figure 7. Download pdf. Remember me on this computer. Enter the email address you signed up with and we'll email you a reset link. Need an account? As you may know, the Foreign Exchange Forex, or FX market is used for trading between currency pairs.
A few years ago, driven by my curiosity, I took my first steps into the world of Forex algorithmic trading by creating a demo account and playing out simulations with fake money on the Meta Trader 4 trading platform. Spurred on by my own successful algorithmic trading, I dug deeper and eventually signed up for a number of FX forums. Soon, I was spending hours reading about algorithmic trading systems rule sets that determine whether you should buy or sell , custom indicators , market moods, and more.
Around this time, coincidentally, I heard that someone was trying to find a software developer to automate a simple trading system. This was back in my college days when I was learning about concurrent programming in Java threads, semaphores, and all that junk. The client wanted algorithmic trading software built with MQL4 , a functional programming language used by the Meta Trader 4 platform for performing stock-related actions.
The role of the trading platform Meta Trader 4, in this case is to provide a connection to a Forex broker. The movement of the Current Price is called a tick. In other words, a tick is a change in the Bid or Ask price for a currency pair.
During active markets, there may be numerous ticks per second. During slow markets, there can be minutes without a tick. The tick is the heartbeat of a currency market robot. When you place an order through such a platform, you buy or sell a certain volume of a certain currency. You also set stop-loss and take-profit limits.
The stop-loss limit is the maximum amount of pips price variations that you can afford to lose before giving up on a trade. Many come built-in to Meta Trader 4. However, the indicators that my client was interested in came from a custom trading system. They wanted to trade every time two of these custom indicators intersected, and only at a certain angle.
The start function is the heart of every MQL4 program since it is executed every time the market moves ergo, this function will execute once per tick. For example, you could be operating on the H1 one hour timeframe, yet the start function would execute many thousands of times per timeframe. Once I built my algorithmic trading system, I wanted to know: 1 if it was behaving appropriately, and 2 if the Forex trading strategy it used was any good.
In other words, you test your system using the past as a proxy for the present. MT4 comes with an acceptable tool for backtesting a Forex trading strategy nowadays, there are more professional tools that offer greater functionality.
To start, you setup your timeframes and run your program under a simulation; the tool will simulate each tick knowing that for each unit it should open at certain price, close at a certain price and, reach specified highs and lows. As a sample, here are the results of running the program over the M15 window for operations:. This particular science is known as Parameter Optimization. I did some rough testing to try and infer the significance of the external parameters on the Return Ratio and came up with something like this:.
You may think as I did that you should use the Parameter A. Specifically, note the unpredictability of Parameter A: for small error values, its return changes dramatically. In other words, Parameter A is very likely to over-predict future results since any uncertainty, any shift at all will result in worse performance. But indeed, the future is uncertain! And so the return of Parameter A is also uncertain.
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Log In Sign Up. Download Free PDF. Nikolas Danoff. Download PDF. A short summary of this paper. IntroductionIn trading the old saying that time is money is true more than anywhere else. In the present paper we will discuss the implications of the deviation observed between quote feeds of binary options trading platforms and the price feed of the regular forex brokers' MetaTrader 4 platforms.
Binary options are new and promising trading instrument, which arose on the trading scene few years ago. In brief a binary option is a financial option in which the payoff is either some fixed monetary amount or nothing at all. This particular feature of binary options makes them appealing for trading from newbie traders, but also attracts significant attention from the seasoned traders as well.
In this respect it becomes more important to ensure that the price feed provided by the binary options broker do not deviate significantly from the ordinary forex brokers feeds, which are already established as a reliable source of the real market prices. Here we will focus our analysis entirely on the major forex currency pairs as their price feeds are very well synchronized among different forex brokers and can serve as a reliable source of market information, opposite to futures and stocks price feeds, where serious discrepancies may occur due to various reasons.
We will compare data feeds of several binary options brokers with the data feed of some established forex brokers. The investigation will show that in some cases the deviations are within a small and acceptable range, while in other cases there are more serious discrepancies which may affect the outcome of short term binary options expiries.
Background readingIn the recent years binary options market continue to attract serious interest among traders from all over the world. Binary options are specific kind of options where from the trader is expected to predict the direction of the market move in a predefined time frame, also known as expiry time. That's why the price at the moment of initiation of the trade become crucial reference point and later it is compared with the price at the time of expiration to produce the final outcome of the binary option contract, respectively 'In the Money' if the price of the traded asset moved in the same direction as the prediction of the trader, or in opposite 'Out of the Money' if the price of the asset at expiration moved in the opposite direction to the trader's prediction.
The profit of a given trade known as a payout is a fixed return on the investment ROI that is determined by the broker before the trade is initiated. Most binary options brokers do not offer proper chart analysis tools and many binary options traders use external third party trading terminal for their analysis. Usually this is the Metaquote's MetaTrader 4 MT4 trading platform, which is widely available with a free demo account with a wide range of forex trading brokers.
Based on the wide availability of MT4 and its proven qualities as a reliable trading platform with stable and accurate price feed, we decided to test and compare a set of binary options trading platform's price feeds with a reference MT4 data feed. MethodologyWe used a screen capturing software Camtasia Studio 8 to record approximately 12 minutes long snapshots of the market price dynamics on both, a given binary options broker platform and MT4 reference platform.
Than we subtracted the two data feeds and presented the difference in a linear chart format. We used five digit price feeds, as they are the most usual for trading currency pairs. On the charts we presented the plot of the last three digits of the five digit price feeds as a function of time each second is split in 3, i. One pip is presented in the form of 10 pipettes tenth of a pip. The vertical line numbers are the change in price, showed in pipettes. This way 1. Than the difference between the binary options broker and the reference MT4 platform is presented below the actual price chart.
The advantage of this method is the possibility to directly compare the price dynamics and volatility with the calculated difference between both price feeds. The obtained deviation shows small fluctuations of 0. The fluctuations continue with the same amplitude and frequency as before the change.
This event is not usual fluctuation and can only be attributed to a broker interaction with the price feed and the switch is more likely to resemble a possible price manipulation. The second tested broker was StockPair.
The result of this test showed smooth price difference chart with rare fluctuation of magnitude up to 1 pips and most often below 0. The result is an example of good correlation between the price feeds and fair pricing of the binary options broker. This is an example of what we should expect if the broker is correct with his retail traders. On Fig. The outcome of this test was very similar to the results obtained from the StockPair platform and there were no abnormal fluctuations in excess of one pips at all.
When examined more closely near the moments of price change it can be noticed that the GTOptions price feed has a small delay of few tenths of a second. Although the delay looks statistically significant it cannot be exploited for arbitrage as the opportunities are very short lived and are not happening in all cases. The fifth tested broker was PowerOptions Fig. Other Message signing. White Labels. Business introducer program Register now!
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