Statistical arbitrage strategies
... in the forex market aim to exploit statistical mispricings of one or more assets based on historical price relationships or other data-driven methods. While these strategies aim to be profitable, it's important to note that no strategy is guaranteed to make money. Here are some statistical arbitrage strategies tailored for the forex market:
Pairs Trading
Identify two historically correlated currency pairs. Go long on one and short on the other when their price ratio diverges significantly, expecting it to revert to the mean.
Cointegration Trading
Similar to pairs trading but based on a more rigorous statistical measure called cointegration. This strategy is often used with currency pairs that have long-term economic linkages.
Mean Reversion
Trade currency pairs that have deviated significantly from a historical mean or some other benchmark, expecting them to revert to the mean.
Momentum-Based Strategies
Identify currency pairs that have shown strong momentum in one direction and trade in that direction, expecting the momentum to continue in the short term.
High-Frequency Statistical Arbitrage
Use high-frequency data to identify and exploit very short-term opportunities. This often requires sophisticated algorithms and infrastructure.
Triangular Arbitrage
Exploit discrepancies in the cross rates of three currency pairs. This is often done algorithmically and requires a high-speed connection to multiple forex brokers.
Statistical Machine Learning
Use machine learning algorithms to predict price changes based on a variety of factors including price history, order book data, etc.
Order Flow Imbalance
Exploit the imbalance between buy and sell orders in the market. This strategy often requires access to high-frequency data and a low-latency trading environment.
Forex Spread Arbitrage
This involves buying and selling the spot currency pair and its corresponding futures contract to exploit any mispricing between the two.
Time Series Momentum
This strategy involves using time series analysis to identify momentum or mean-reversion effects in currency pairs and trading accordingly.
Sentiment-Based Arbitrage
Use sentiment indicators, possibly from social media or news sources, to trade against extreme sentiment conditions.
Volatility Arbitrage
Exploit the difference between implied volatility (from options pricing) and expected realized volatility of a currency pair.
Liquidity Arbitrage
Exploit small differences in liquidity across different brokers or time zones. This is more relevant for exotic or less commonly traded pairs.