1. Arbitrageurs in search of
Golden Opportunities
After almost a year of often intense debate about the potential
duration of the global economic downturn and despite recent
gains across the commodities and now equities markets,
informed pundits continue to express reservations about the
durability of a general global economic recovery. With such
negative sentiment seeming only to further propagate market
fluctuations, savvy arbitrage traders have their foot on the
accelerator for cashing in on fickle market pricings.
As we know, investing is all about degrees of risk (and return),
and critically, to know precisely where risk lies and use it for
advantage. In theory, an arbitrage is a risk-free transaction.
While some economists might argue inherent risk exists in tim-
ing given all markets eventually find true equilibrium, arbitrage
is more about the arbitrageur’s ability to create the opportunity,
relying on his technology for timing and speed to ensure the
opportunity is acted on, with profit realized.
Arbitrage – a case example
Boiled down, many arbitrage opportunities reflect very minor pric-
ing discrepancies that either exist, only ever temporarily, between
markets or are created by the arbitrageur. Per transaction profits
tend to be small and can sometimes be consumed by transaction
costs. To counteract this we are currently seeing some exchanges
offering incentives such as sav-
ings on fees in the hope of at-
tracting additional traders, par-
ticularly arbitrageurs.
In its simplest form, consider
that Gold futures contracts are
trading on NYMEX at a bid of
$935.20 an ounce and on NYSE
Liffe at a bid of $934.90 an
ounce. The arbitrageur created
the arbitrage opportunity by bidding $935.00 on NYSE Liffe with
a resulting hit on the bid, followed by a sell order at the bid of
$935.20 on NYMEX. Sounds simple, but key to the success of this
strategy is multi-market and fast direct access to these markets.
And as new markets win favor with these investors, the chal-
lenge of course is to come up with faster market gateways to new
sources of liquidity.
“Increasingly arbitrage traders and futures market makers are
using Orc technology to trade gold derivatives, very much relying
on Orc’s proven multi-market, low-latency trading solutions,”
says Markus Kämpe, Senior Product Manager at Orc Software.
“We have for some time known we have a strong solution for ar-
bitrage trading and of late have seen increased interest for this
from the Gold derivatives market.”
Gold enjoys market run to challenge all-time high of $1,032.70
Attracting many arbitrage opportunists, there are numerous
exchanges listing Gold derivatives globally with most express-
ing unit values in USD. During the last couple of years additional
Gold markets have also appeared. The list of exchanges now
includes NYMEX, MCX, TOCOM, NYSE Liffe US, TAIFEX, SHFE,
DGCX, TFEX, FORTS, HKex, Eurex etc. Most inter-exchange Gold
futures trading strategies involve NYMEX, by far the most liquid
Gold futures market.
Next to NYMEX, Tokyo’s TOCOM is also considered a primary
futures exchange for gold trading. Both these exchanges are
general purpose commodities
exchanges that trade sub-
stantial numbers of futures
contracts. During the first two
weeks of June 2009, NYMEX
alone has averaged daily vol-
umes of around 100,000+ Gold
futures contracts.
In the Middle East, total
volume on the Dubai Gold and
Commodities Exchange (DGCX) for May 2009 reached a record
158,074 contracts – their highest monthly volume achieved in
2009 and a year-on-year volume increase of 77%. As is the case
with other exchanges, higher volumes were in major part driven
by renewed interest in Gold as a safe haven.
Orc Software examines the criteria for profitable
arbitrage trading on Gold derivatives markets.
Chief Marketing Officer Annie Walsh taps market
insight from Senior Product Manager Markus
Kämpe to define the underpinning technology
required to turn profits.
Increasingly arbitrage traders and
futures market makers are using Orc
technology to trade gold derivatives, very
much relying on Orc’s proven multi-
market, low-latency trading solutions
”
“

2. “DGCX is an example of a very interesting market for Orc,” says
Markus Kämpe. “Based on discussions with the market par-
ticipants at the exchange, it is clear there is a need for good
market making and arbitrage trading solutions. As part of Orc’s
development of a strong offering for the Middle East we are now
completing connectivity to DGCX and we expect a significant
uptake of our trading solutions for Gold derivatives in the region.
In addition to DGCX, Orc recently finalized connectivity to TOCOM
and we feel we now have not only strong trading solutions for
Gold derivatives, but also a strong connectivity offering for Gold
derivatives.”
Basab Banerjee, Head of I.T. at DGCX comments on Orc as a
new ISV at the exchange: ”We are confident that our members
will benefit from market making and arbitrage trading solutions
from Orc in the future. Due to its strategic location between the
time zones of the East and West, DGCX offers numerous arbitrage
trading opportunities for cus-
tomers across the globe. For
example, with its USD de-
nominated one kilo bar Gold
futures contract which has
the additional advantage of
being transacted and cleared
within the favorable tax envi-
ronment of the UAE.”
The liberalization of China’s
gold trading market influ-
enced the Hong Kong Futures Exchange (HKFE) to resume gold
futures trading in late 2008. Trading had been suspended during
the 1990s due to low demand and few participants. After this lib-
eralization it was not long before the Shanghai Futures Exchange
(SHFE) launched gold futures trading (January 2009), offering
a contract size of 1kg. Given the world’s major gold futures ex-
changes trade and settle in US dollars and that the Shanghai fu-
tures market trades in Yuan, the Hong Kong futures market can
also help investors reduce risk and provide arbitrage profit op-
portunities from currency fluctuations.
There is considerable interest among foreign investors for
commodity derivatives trading in India. MCX, its major commod-
ity derivatives exchange with very good electronic liquidity in
futures, and though currently closed to foreign investors, there
are industry rumors suggesting this may change in the not too
distant future.
Smaller worldwide exchanges attempting to attract more inves-
tors and increase market share for Gold trading are adopting
savvy marketing practices. One such example is Eurex which
introduced Gold futures in January 2009 and has until now (June
2009) waived fees for trading these products. Tactics like these
are likely to attract arbitrage traders as well as proprietary trad-
ing and brokerage firms.
Kämpe says: “We see significant opportunities for our clients to
participate in arbitrage trading and market making activities at
Gold derivatives exchanges globally. The trading strategies used
in arbitrage trading and market making are very similar, which
means trading and brokerage firms through deploying a market
making strategy, can make profits on arbitrage trading and
receive fee waivers based on their market making agreements
with the exchanges.”
Futures spreading and arbitrage trading require sophisticated
solutions that are fast and smart. One without the other can leave
firms exposed and vulnerable.
“The recently released Orc Spreader was brought to market after
close development collaboration with high frequency futures
spread traders aiming to use it for capturing arbitrage opportu-
nities,” continues Kämpe. “As a server-based, arbitrage trad-
ing solution, the Spreader
leverages the Orc Trading
platform and works seam-
lessly with our market
connections. The Spreader
further strengthens Orc’s
already proven arbitrage
trading offering for clients
wanting a product that
already contains the
arbitrage trading logic they
need. Other clients looking
to fully customize arbitrage trading strategies can select Orc’s
algorithmic trading solution.”
The Orc Trading engine is capable of handling a large number
of spreads with sub millisecond latency. The ultra-low latency
market gateways allow orders to be rapidly delivered to the
exchange. Used with Orc Trader, the Spreader can deliver with
the response times required for reducing missed hedges or
hung trades, thereby providing the reliability needed to trade in
volatile and turbulent markets.
“This is a futures spread trading solution that has proved faster
than other products we have tried. We are now able to capture op-
portunities that once were lost and mitigate our risk in fast moving
markets.”
Chris Snyder, Head of Trading at Chicago-based Fox Trading
Arbitrageurs looking to rapidly deploy a complete trading solu-
tion that can be customized on-the-fly in response to changed
market conditions should be speaking with Orc today about its
latest arbitrage offering. 
We see significant opportunities for
our clients to participate in arbitrage
trading and market making activities at
Gold derivatives exchanges globally
”
“
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