Event-Driven Design for an Arbitrage Trading Strategy
Summary
The article presents a simple cross-venue arbitrage example and uses it to show how algorithmic strategies can be organized around events. A strategy quotes one instrument using prices from another, aiming to capture a specified spread, then places a hedge after a fill. The author maps actions to market data, order acknowledgements, executions, rejects, and parameter changes.
The examples show why the event list must account for real exchange behavior. Latency can leave stale quotes in place; fills can create periods with no resting quote; and partial executions can make replace requests fail when transaction timestamps are outdated. The article recommends reacting to acknowledgements, executions on the hedge instrument, and rejects to refresh orders. It also flags simultaneous events and shared state as concurrency risks, while sequential processing can add latency. This is an illustrative design discussion, not a complete production strategy: fees, market impact, limits, and profitability are not evaluated.
Key ideas
- A trading algorithm can be designed as a set of event handlers and reactions.
- A cross-venue arbitrage example prices quotes from a second instrument and hedges after execution.
- Acknowledgements, hedge-side fills, and rejects can require quote refreshes to avoid stale or absent orders.
- Partial fills and exchange transaction timestamps complicate order replacements.
- Concurrent event handling can create inconsistent strategy state, while sequential handling may increase latency.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.