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18 currency arbitrage Of course, absolutely every trader dreamed that he will have a strategy that will bring him huge profits. But the main thing is that you do not have to constantly carry out this boring analysis of the market, always sit at the monitor. Is not it? Everyone would like to!

Yes, everyone wanted this, but is it possible?

In financial markets, particularly in the Forex market, there is such a thing as currency arbitrage. Arbitrage is a series of logically related transactions aimed at extracting profits from the difference in prices for the same or related assets at the same time in different markets or in the same market at different times.

And you can not say that arbitrage of currency pairs will really give you everything at once, but this is exactly the case when your risks are striving for absolute zero in trading, when you do not need any analysis of currency pairs, and you will not need any surveillance behind the market. Arbitrage on Forex is the case when you will really get your earned income without exerting effort.

CURRENCY ARBITRAGE - WHAT IS IT?

It is worthwhile to place all the points above the "i" at once. Forex currency arbitrage is the execution by a trader of transactions for the purchase or sale of a currency with the subsequent mandatory execution of a reverse transaction in order to obtain profit.

If the trader will use arbitrage on Forex and at the same time control the risks, then his trade can become extremely profitable. The meaning of currency arbitrage is the following: profit is achieved due to the fact that the purchase and sale of financial instruments occurs at different times. In addition, a trader has the opportunity to conduct a financial transaction in another market. Arbitration of currency pairs involves not just buying and selling currency on the market, but also a reverse operation, the one that will ensure the receipt of profits.

TYPES OF CURRENCY ARBITRAGE

In total, several types of arbitrage are available to the trader. There is a simple arbitration, involving the use of only two currencies, as well as a complex one, which involves the participation of three or more currencies in the operation.

Depending on what profit can be obtained, the following types of currency arbitrage are determined:

- Temporary. Temporary arbitrage on Forex is the most common type of arbitration. The essence of the temporary arbitration is the difference in the exchange rates of currency pairs at different times. Temporary currency arbitrage can be of two types:

  1. "Purchase - Sale". A trader buys a currency cheaper to make a profit with a subsequent sale at a higher price.
  1. "Sale - Purchase". The trader sells the currency expensively in order to buy it back at a lower price in the future.

- Cross-country. It is considered one of the most difficult types of arbitration. At the time of cross arbitration there is a simultaneous change of the courses in two pairs. Such cross-imbalances occur on Forex all the time.

- The inter-exchange. Inter-exchange currency arbitrage arises in the event that the rate is applied to the difference in exchange rates in different currency markets.

However, arbitrage on Forex is not always profitable, because in modern conditions, exchange rates on various exchanges do not always differ, which prevents traders from gaining additional profits.

The main essence of arbitration is the holding of futures deals on the purchase and sale of currency options. The option is subject to compulsory execution, and its conditions depend on its type and mandatory provisions of the concluded contract.

In general, the choice of the Forex strategy depends on many factors, related to each other, which the trader must necessarily take into account when participating in the trade.

TRADING METHODS OF ARBITRAGE ON FOREX

But today we will consider not only the types of currency arbitrage, because there are also a lot of varieties of arbitrage methods of trade, which vary in methods of work, markets, the number of tools and other parameters. Consider the most popular types of arbitration.

1. Statistical currency arbitrage on Forex - buying and selling one financial instrument in different markets or from different brokers. Used for uncertainty of the market. One of the assets closes when the key price level passes, and the second is left to accumulate profit.

Statistical arbitrage also includes trading using the same type of assets - for example, currencies and CFDs for a similar pair, or trading in different futures of one underlying asset, and so on.

2. Currency arbitrage on forex is the execution of transactions involving the use of currency pairs and synthetic market assets.

Currency arbitrage on Forex is the most effective and popular method of arbitrage strategies. Considering trading strategies, you can also highlight some types of currency arbitrage.

  • Intermarket or spatial currency arbitrage in Forex - is the opening of transactions in different markets. For example, buying a currency pair in London, and selling in Tokyo.
  • Interest rate arbitrage in the foreign exchange market - this method of arbitration involves the purchase or sale of an asset taking into account the difference in interest rates in the countries that form the asset. Thus, if you choose the right pair, then for each day of holding such a position, positive swaps will be charged.
  • Synthetic arbitrage is the most popular method of arbitrage. It consists of synthetic arbitrage based on the purchase and sale of currency pairs that are directly or reverse conversion. It is also important to find the right currency pairs, as well as the moment of entering the transaction.

To consider an example of currency arbitrage, it is first worth recalling what a synthetic transaction is. For example, we have currency pairs EUR/USD and USD/CHF. If we multiply them among ourselves, we get the EUR/CHF currency pair. Just in such a situation they say that the pair is synthetic, that is, it is formed from two currency pairs.

Sometimes it happens that a currency pair is not available for trading in the terminal, but it can be obtained by synthetics of the other two currency pairs that are available for trading. In our case, EUR/CHF is a very common tool. Only here the values ​​at the same time point for the instruments EUR/CHF and synthetics EUR/USD and USD/CHF do not always coincide.

Another type of Forex arbitrage is trading using one tool, but in different conditions. For example, earlier people found clearances in quotes on different trading servers in the same company. Or another option, when the discrepancies took place for the same currency pair, but in different companies.

The principle remains common, namely, the opening of counter positions in the divergence of the values ​​of selected trading instruments. Closure at convergence of values ​​or at the following divergence in the opposite direction.