# Arbitraging OANDA continuous rollover vs other brokers' discrete rollover

Most brokers compute rollover once a day (2200 GMT), but OANDA calculates it continuously.

 Professional traders can exploit this flexibility by arbitraging the
continuous and discrete interest-calculation scenarios through two
trading lines--one with an established player, such as Citibank or
UBS, and the other with OANDA. Whenever they sell a
high-interest-rate currency (such as South African Rand) they can do
so with the traditional player, where they will pay no intra-day
interest for shorting that currency. On the other hand, they can
always buy a high-interest-rate currency through OANDA, where they
earn the "carry" (interest-rate differential) for the position,
however briefly they may hold it.


Has anyone done this? I realize the bid/ask spread on both sides would have to be small, but this still seems viable?

My form of arbitrage is slightly different: hold a high-interest position w/ a regular broker for 1 minute on each side of rollover time, just to get the rollover (for the entire 24 hour period). Take the opposite position w/ OANDA. You'll pay rollover, but for only 2 minutes.

EDIT: Apologies, I never got around to test this. Has anyone else had a chance? I realize oanda.com's higher spreads (which are non-negotiable) may cover the arbitrage.

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Transaction costs are indeed the barrier to most forms of arbitrage. Have you backtested your strategy with historical data? –  chrisaycock Mar 13 '11 at 17:22
@chrisaycock Nope. I plan to "forward test" in about 3h35m10s... Backtesting may be difficult since different brokers have different bid/ask spreads and different rollover rates. I'm not sure how much historical data they keep on either. –  barrycarter Mar 13 '11 at 17:25
how did it end up going? –  emaster70 Aug 2 '11 at 8:36

OANDA's quotes are set by OANDA, not by the market. They deliberately skew their quotes towards whichever side they would like to be on. In your example, if as a result of traders like you OANDA has accumulated a net long position in a high yielding currency just before the official rollover time, they will set their quotes a bit higher than the true market in order to encourage selling. After the rollover time, they will set their quotes a bit lower in order to encourage buying while you and other trades like you are selling. The closed nature of OANDA's platform (no possibility to move your positions to another broker) make it very unlikely that this sort of strategy will work in practice. Even if it does, I am confident you will be benefiting at the expense of other OANDA traders, not at the expense of OANDA itself. In any case, it is unlikely that yields will be high enough to offset the typically very wide bid/ask spreads at rollover time.

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How did your test of arbitraging Oanda's continuous interest versus other FX broker's rollover go? I ran a similar test before and found it did not overcome the spread costs, although starting on Wednesday (triple pay day) helped, the weekend interest at Oanda would catch up.

There are other ways of trading this arbitrage. You can average into a leveraged interest positive position at Oanda, and then open a hedging position at another broker after the rollover. However, that is essentially no different than conducting a straight retail trade but with the added risk of carrying potentially large positions in multiple brokers.

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