Triangular Arbitrage
Candlefocus EditorWhen triangular arbitrage is done correctly with the right timing and trade size, traders can generate a healthy profit from the transaction. Though it takes remarkably fast and accurate transactions to exploit these discrepancies, the market driven by supply and demand usually makes this possible, as the market is always in a state of flux. Traders need access to fast, reliable real-time data when taking advantage of these trading opportunities, so computers and automated trading systems are often used to facilitate the process.
Though triangular arbitrage is profitable, its main purpose in today’s markets is to help improve price efficiency. By exploiting these momentary price discrepancies, arbitrageurs continually force currency prices to move in line with their “intrinsic values” and eventually converge at the same price. By doing this, the entire market becomes more efficient and traders can now effectively assess the true value of any given currency without having to worry about discrepancies.
Overall, triangular arbitrage is a form of low-risk and profitable trading that allows traders to make profits while also improving the efficiency of the currency market. By making quick and large trades to exploit possible price discrepancies, traders can take advantage of the brief imbalances occurring in the market due to constantly fluctuating rates. Through the use of algorithms and real-time data, traders can remain competitive when taking advantage of the arbitrage opportunities afforded by these pricing discrepancies.