We discourage arbitrage trading in most forms, specifically latency arbitrage. This form of arbitrage is trying to find errors in the pricing provided by our LP and in which case they will correct the trades post execution. Not allowing this from the start means that the client won't have trades adjusted to the correct level and end up paying the spread for their trades which will most likely leave the account in a negative.
Swap arbitrage, while not specifically banned, should not be encouraged either as if an error is discovered with our LP's swap prices, the client's trade will be corrected post execution which may put them into negative balance or larger loss than anticipated.
Why do you not allow latency arbitrage?
We tell clients that we don't allow latency arbitrage because of the following:
Latency arbitrage means that there is an error somewhere in the system, that is, there is latency in the quote and it is incorrect. If our LP is indeed providing latent quotes, while that indicates an issue on their side, it may cause them to cease working with us or widen out the spreads. This can harm other clients trading with us that aren't trading in this manner so as a general rule, we would prefer it if clients didn't try this type of trading strategy.
Ultimately, we can't tell if a client is trying to scalp or pick off latent quotes, it will look the same on our end but we will know as soon as the LP complains as they are usually on-top of this type of stuff rather quickly. We may also find ourselves having to adjust trades post being closed. If the latent quote was over a news event or a rapid movement, the LP may re-value our trade with them which will force us to re-value your trades with us. This isn't a good experience for anyone so where possible we would like to stress that we don't wish for clients to be conducting this type of trading.
In relation to why we allow swap arbitrage, the providers have had a lot of time to calculate their swap rates and put them out. This is very different from there being an error in the system that the client is trying to take advantage of.