Arbitrage Currency Trading? how can you make money using this strategy?

For example using EUR/USD, EUR/GBP, GBP/USD pairs ? how does it work and is it legal?

Forex arbitrage is a risk-free trading strategy that allows retail forex traders to make a profit with no open currency exposure.

Let’s look at an example:
The current exchange rates of the EUR/USD, EUR/GBP, GBP/USD pairs are 1.1837, 0.7231, and 1.6388 respectively. In this case, a forex trader could buy one mini-lot of EUR for $11,837 USD. The trader could then sell the 10,000 Euros, for 7,231 British pounds. The 7,231 GBP, could then be sold for $11,850 USD, for a profit of $13 per trade, with no open exposure as long positions cancel short positions in each currency. The same trade using normal lots (rather than mini-lots) of 100K, would yield a profit of $130. This can be continued until the pricing error is traded away.

I don’t know whether it is legal or not but i don’t think so that any broker allows arbitrage currency trading.

Are you copying-pasting or is your personal experience?

Sure you can try to arb all you want. But your spread, your latency, your risk profile and order execution platform are going to be very much sub par, considering your going to be using retail tools. Your not going to be able to detect the arb fast enough to be profitable, nor have arbs big enough to make it a lasting edge. Arb is one of the most algo traded areas, your going to be in the realm of HFT at what they do best.

Straight from investopedia
How do I use an arbitrage strategy in forex trading?

I echo what MeiHua said. You’ll be competing with the big boys who have the most sophisticated software, hardware and expertise (ie hedge funds, investment banks). You won’t stand a chance

anyway I already know that , because i have asked about EUR/USD, EUR/GBP, GBP/USD … I want to know why and how arbitrage works …:rolleyes:

Hi ForexMnstr
I can share my small experience.
The arbitrage you’re referencing is called triangular arbitrage - and it’s absolutely legal. The other tthing is that the fluctuations and inefficiencies which you’ll see is usually so small that you won’t be able to utlize them with your regular Forex broker - the spreads will be wider, execution time can kill you as well and so on. So it’s all about technical stuff - you need to have really fast execution and honest broker :

I’ve also tried another type of the arbitrage - trading single instrument with multiple brokers (I’ve even made a software which was monitoring one instrument across several brokers and once the arbitrage was found - was sending orders to both of them). But unfortunately I’ve faced the same technical challenges - for example your software identified an arbitrage and you sending BUY to Broker1 and SELL to Broker2. As I’ve used metatrader the commands were send only on the next tick (not sure about another platforms but I presume there is the same stuffthere). But the problem is that Broker1 can provide you with this tick in short period of time while Broker2 can just “hang” - no ticks for several seconds - or even minutes. And once you get this tick the price is already changed. As the result you have one naked position at Broker 1, and worst case - second open position with Broker 2 but with crappy price. For example in my case FXCM was providing ticks just fine while others were “hanging”.

So I would say that in case of arbitrage the speed is the key. Maybe it’s possible to find two or more brokers which will give you the quick feeds so you’ll be able execute at price close to your optimal. But I didn’t manage to find such ones yet. I’m not saying its not possible - it just takes time.

BTW here is the good page on triangular arbitrage - take your time and read it - it’s really helpful - Triangular Arbitrage 101 - Market Formula = Forex Trader + Metatrader

It is legal in the sense that you cannot get arrested or being responsible to the authorities. But the brokers don’t allow it (read their ToC and you’ll see). Best case for you: they wont pay out your winnings; worst case? They’ll freeze your account (probably with all your money in it).

It is quite easy to iterate in MT4 much faster than the ticks provided by the chart the EA is attached to. This is a trivial technical hurdle.

Hi autofx

Sorry, but I didn’t really get it about quick iteration.
The problem is not in iteration - but in execution. In case of arbitrage margin between winning and losing setup is very small. And the positions should be opened almost instantly on two instruments with predefined prices. If you’ll miss - for example you managed to open on one broker but failed on another - you’ll have just one open uncovered position on your hands. Or you can have two open positions but with open prices which doesn’t give you any arb.

I am ever reading arbitrage trading on forex with pair gbpjpy, gbpusd and usdjpy, with rules buy for gbpjpy and sell on gbpusd and also usdjpy, but also need patience because sometime floating minus still occured