If you've been trading for a while, you probably already know more or less about Arbitrage. However, in this article, we will mention a more "strange" Arbitrage operation, that is, Arbitrage 3 currency pairs - Triangular Arbitrage, in the currency market.

Arbit 3 products in trading are done by changing from the first currency pair to the second currency pair, then from the second pair to the third pair, then from the third pair back to the first currency pair. Profit is earned when the exchange rate difference occurs in these 3 pairs.

To understand, let's see an example from Saga.vn

Current rates are as follows:

EUR / USD = 0.8631, EUR / GBP = 1.4600 and USD / GBP = 1.6939.

And you have $ 1 million on hand.

At the rates above, you can sell these 1 million dollars to buy EUR, you will get: 1 million USD x 0.8631 = 863,100 EUR

Then sell the Euro to buy the British Pound, obtained: 863,100 / 1.4600 = 591,164.40 GBP.

Finally you sell British Pound to buy back the dollar, yes: 591,164.40 x 1.6939 = $ 1,001,373 USD

Thus, by conducting Arbit 3 pairs, you will get the difference of:

1,001,373 - 1,000,000 = 1,373 USD

To have $ 1 million in real life is difficult, but with 1: 100 leverage in the financial markets, we only need $ 10,000.

The profit margin is: $ 1,373 / $ 10,000 = 13.73%

The profitability is too delicious, right?

Especially, since this transaction takes place IMMEDIATELY, theoretically, there is no risk.

Now, if you do a Google search, you will find that there are many commercially available calculation systems to help detect this Arbitrage opportunity because of the fact, these 3 pairs of differences are rare and only. Usually occurs when the price fluctuates strongly. However, if you can "capture" a chance to perform 3-pair Arbit, it's delicious because it's not risky.

Several practical limitations may arise
  • Rarely happens 3-pair Arbit
  • When rapid volatility and spread occur, the broker spreads the currency pairs, making the possibility that Arbit will have little or no profit.
  • Entering a 3-pair order must be done quickly, but if "unlucky", the broker executes this order and kicks the other order, it will lead to the risk of loss.
  • Rumors in the market that there are some Funds use algorithms to trade this type. Their advantage is that they are connected to the Interbank system which has extremely low spreads, and the system of machines and algorithms is extremely modern so they can "eat" immediately when Arbit 3 pairs appear.
A few words

Some of the 3 pairs that are often mentioned when doing Arbit like this are: EURUSD GBPUSD EURGBP; EURUSD USDJPY EURJPY; EURCHF GBPCHF EURGBP;

This is a good theory for the market and if you have some algorithmic research or EA (robot) development, you can do some research.

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