Forex

Arbitrage

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

What is Forex Arbitrage

Forex arbitrage is the strategy of exploiting price disparity in the forex markets. It may be effected in various ways but however it is carried out, the arbitrage seeks to buy currency prices and sell currency prices that are currently divergent but extremely likely to rapidly converge.

KEY TAKEAWAYS

  • Forex arbitrage is a trading strategy that seeks to exploit price discrepancy.
  • Market participants engaged in arbitrage, collectively, help the market become more efficient.
  • All types of arbitrage rely on unusual circumstances being temporarily extant in the markets.

How Forex Arbitrage Works

Because the Forex markets are decentralized, even in this era of automated algorithmic trading, there can exist moments where a currency traded in one place is somehow being quoted differently from the same currency in another trading location. An arbitrageur able to spot the discrepancy can buy the lower of the two prices and sell the higher of the two prices and likely lock in a profit on the divergence.

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