I have a question about a triangle formation arbitrage opportunity, how those transactions actually work out practically. I am quite new to forex to keep in mind.
When looking at the example below we first start to:
BUY EUR/USD for $1 million. This I do understand.
Second step, it is said to “sell euros for pounds”. What I don’t understand here is that doesn’t we have an open position in EUR/USD that we first need to close? - Or is there a possibility when it comes to forex to use the EUR from step 1 to get pounds? This confuses me how the transactions work practically at a broker.
The same question is then ofcourse in step 3. Do I own pounds from step 2 that I will convert back to dollar?
As I am used to stocks, we usually BUY a position and SELL that position to be out of the position.
What I wonder is if we in this example, buy euro for dollar. Now we actually own euro. Then use the euro to buy pounds. Now we actually own pounds. Then use the pounds to buy dollar?
I simply would need to understand how we actually execute the orders practically at a broker account in the below example?
Your account is always converted in your base currency, so if you have a USD account and you transacted in EUR/GBP, the money will be converted into USD. I think your example will not be functional/profitable.
I am not sure if I understand exactly anyway. It is not important if the example if profitable, however let us assume that the example is profitable in order to understand the process of how forex orders work.
I would need to understand how the example is executed at a broker practically.
First question. Is this 3 separate transactions one after the other?
The example suggests that the last transaction is: “Sell pounds for dollars” so I wonder here, must this transaction happen last - OR - doesn’t it matter in what order the 3 transactions will be executed?
In addition to question 2. Would it also be okay to execute the 3 orders simultaneously. With other words at the very same time?
Bear in mind that I am new to forex. I still don’t understand how the 3 trades will be executed and if it does matter in what order those 3 trades are executed. My account is a USD account.
The 3 orders that is written to be executed. Does it matter in what order those are executed and also, would it be okay to simultaneously execute the orders? I wonder how a triangular arbitrage order situation work practically.
I feel good finding this thread, me also developing such strategy triangular arbitrage between EURUSD, EURGBP & GBPUSD.
As i do mql coding i did make a EA and gave a try, highlights
EA will keep monitoring Ask, Bid prices for all those 3 pairs
Will keep monitoring spreads of all those 3 pairs
At any given moment EA will keep calculating the extra using gains by
BUYING – EURUSD
SELLING – EURGBP
SELLING – GBPUSD
and compare the value with spread if in total it comes positive EA will place trades immediately without any delay and close them immediately, thus making profits.
Downside
Need broker with Lowest spread and no commission
STP / ECN environment required
Find broker which will payout even for arbitrage trades
VPS for hosting EA cloud be nearer to broker’s server to get fastest execution
Only few trades a day but yes with big lot a good amount of profits.
First of all in the efficient market which forex is, there is no place for arbitrage, because any opportunity to make money risk-free quickly disappears due to the growing number of traders that want to take advantage of it. Also you won’t be able to implement this strategy with retail brokers due to speed disadvantage.