Book Image

Getting Started with Forex Trading Using Python

By : Alex Krishtop
Book Image

Getting Started with Forex Trading Using Python

By: Alex Krishtop

Overview of this book

Algorithm-based trading is a popular choice for Python programmers due to its apparent simplicity. However, very few traders get the results they want, partly because they aren’t able to capture the complexity of the factors that influence the market. Getting Started with Forex Trading Using Python helps you understand the market and build an application that reaps desirable results. The book is a comprehensive guide to everything that is market-related: data, orders, trading venues, and risk. From the programming side, you’ll learn the general architecture of trading applications, systemic risk management, de-facto industry standards such as FIX protocol, and practical examples of using simple Python codes. You’ll gain an understanding of how to connect to data sources and brokers, implement trading logic, and perform realistic tests. Throughout the book, you’ll be encouraged to further study the intricacies of algo trading with the help of code snippets. By the end of this book, you’ll have a deep understanding of the fx market from the perspective of a professional trader. You’ll learn to retrieve market data, clean it, filter it, compress it into various formats, apply trading logic, emulate the execution of orders, and test the trading app before trading live.
Table of Contents (21 chapters)
1
Part 1: Introduction to FX Trading Strategy Development
5
Part 2: General Architecture of a Trading Application and A Detailed Study of Its Components
11
Part 3: Orders, Trading Strategies, and Their Performance
15
Part 4: Strategies, Performance Analysis, and Vistas

Arbitrage – let’s earn from others’ mistakes

Arbitrage in financial markets means taking advantage of situations when the same asset is priced differently at different trading venues. Such a situation is usually called mispricing (there are other meanings of this term, and we will get back to it in the very next section about statistical arbitrage). Due to the colossal fragmentation of the FX market (see Chapter 3, FX Market Overview from a Developer’s Standpoint) mispricing there is not infrequent, so an arbitrage strategy looks pretty straightforward: as soon as we see that, say, EURUSD is priced at 1.00012 at LMAX and 1.00013 at IS Prime, then we simultaneously buy at LMAX and sell at IS Prime, pocketing one-tenth of a pip.

I think you can clearly see some problems with arbitrage, which directly follow from its description.

First, the potential profit from a single trade is ridiculously small, so you have to make lots of trades in order to be consistently...