Managing One-Sided Fills in Arbitrage Execution

Summary

The document considers execution risk in a two-market foreign exchange arbitrage. If one leg fills and the other does not, the position is exposed rather than hedged. The question proposes crossing the spread to complete the missing leg, waiting briefly before canceling, or trading out of the filled leg. The answer characterizes the situation as slippage and advises trying to execute the intended order again, consistent with pursuing the strategy.

It also recommends investigating why the order failed and addressing the underlying operational issue with the technology team. This response does not compare the three proposed actions, specify when to retry or unwind, or account for price movement, liquidity, fees, limits, and risk controls. Consequently, it offers a broad operational lesson rather than a complete recovery policy: execution handling needs both a decision for the exposed position and diagnosis of the failed order.

Key ideas

• A fill on only one leg of an arbitrage leaves an unhedged position exposed to price changes.
• The answer suggests retrying the intended execution, but does not specify a retry policy.
• Investigating order failures can help identify and address recurring operational problems.
• The response does not compare completion, waiting, and reversal under different market conditions.

Tags

# What are recommended recovery techniques in arbitrage when one order doesn't fill?


# What are recommended recovery techniques in arbitrage when one order doesn't fill?












Let's say you are running an arbitrage strategy in the Forex market. You see an opportunity to buy USD/JPY at 100 on exchange A, and sell USD/JPY at 105 on exchange B. You submit the buy and sell order simultaneously as limit orders to these two exchanges. Due to unforeseen circumstances, your buy order fills but the sell order does not. I can think of a few techniques to do, which one is recommended?

- Fill the sell order at the current market price, taking a potential loss.

- Wait x some time for the sell order to fill, and then cancel.

- Revert the buy order by placing a new sell order that cancels out the buy order.

## Answer by rupweb (score 3, accepted)

https://quant.stackexchange.com/a/35148

If you don't fill an order that you intended to fill then you usually try again. After all, that's your strategy. Then the professional response is to open a ticket with IT on why the order wasn't filled, and find out exactly what the problem was, and why, and take IT actions so it can't happen again.

In a way, you're asking about a form of "slippage".

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