What Is Forex Arbitrage?

The more frequent opportunities arise, the more it describes the uneven pricing of currencies patterns. The arbitrage strategy may cause an investor to be stuck with his work in foreign exchange and earn profits because of pricing inefficiencies. Basically, it is a scenario which is described by the issues of disequilibrium in the pricing strategies. Because of over or under pricing, some events are not in favor of traders. Investors usually try to take a backup tire to remain safe from contingent events.

Triangular arbitrage or three-point arbitrage is a widespread practice being implemented in the foreign exchange trading market. This is a systematic way towards triangular arbitrage. The process of triangular arbitrage is really ordered and even a small jumble can cause it to leave its boundaries of triangular arbitrage since it may be considered as a sensitive phenomenon.

The triangular arbitrage strategy involves the following steps:

1) Investing Currency A in to Currency B

2) Investing Currency B in to Currency C

3) Again investing the currency C back in to currency A


In this Figure, we can see one example where the investor has $1,000,000.

Currency A is USD

Currency B is CAD

Currency C is CHF.

Profit is : $1005,222







The list of benefits that any investor may earn through triangle arbitrage strategy is as follows:

1) Profits and returns on huge investments;

2) Risk is placed on the least level, however a small amount of risk is present in each of the investment transaction;

3) Invest to earn returns, no more problematic issues;

4) To earn profits, the strategy may be adopted in uncertain situations;

5) When market situations are said to be uncertain, it is recommended to make shorter term investment. This implies that investors may earn profits even when situations are declared as uncertain.

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