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Before proceeding to the definition of currency arbitrage, I would like to note that this is a rather broad concept of trade, which unites several different methods of trade. Arbitrage is an operation that combines the purchase or sale of currency with the corresponding centerdelay for profit due to the difference in exchange rates in different exchange markets (spatial) or time (temporal arbitrage). Simple arbitrage with two currencies, a complex with three and more currencies.
To consider the example of currency arbitrage the first is to remind you that this synthetic operation. For example, we have the currency pair EUR/USD and USD/CHF. If you multiply them together, we get the EUR/CHF currency pair. In such a situation, say a pair of synthetic, that is, formed of two currency pairs.
Sometimes it happens that the terminal is not available for trade some currency pair, but it can be obtained by using other synthetic two currency pairs available for trading. In our case, the EUR/CHF is a quite common tool. Only here the values in the same time by instrument EUR/CHF and synthetic EUR/USD and USD/CHF are not always the same.
In Fig.1 we see two curves. One of them is EUR/CHF, and the second consists of points of the synthetic EUR/USD and USD/CHF. It does not matter which of the curves corresponds to one and the second tool. More importantly, there are periods of time when the curves coincide, and there are times when you disagree. The task of the trader is to catch the moment when the value of trading instruments will be significantly different from each other, as seen in the figure. One currency pair when it is bought and another sold.
Closing transactions will occur at a time when both pairs of curves cross again. Thus, the currency speculator uses the difference in values of the instruments to make a profit by opening opposite positions. In this trade we should not forget that there is a spread, which also should be considered in all transactions.
Another form of arbitrage in Forex is trade with the same tool but in different conditions. For example, people used to find gaps in the price on different shopping servers in the same company. Or another option, when the differences was the place to be for the same currency pair, but in different companies.
The principle is General, namely, the opening opposite positions when the difference of the values of the selected trading instruments. Closing with the ascent of the next values, or differences in the opposite direction.
|Category: Forex | Added by: (06.11.2017)