Triangular Arbitrage

Triangular arbitrage is also termed as triangle arbitrage. In this form of arbitrage, the arbitrageur takes the benefit of a disequilibrium condition existent in three currency exchange markets.In this process, a group or collection of corresponding deals are chanced upon with the help of capitalization on the disequilibrium.
In case of triangular arbitrage, the profit arises from the deviation in market prices.Theoretically, the triangular arbitrage provides a risk-free gain or profit. The chances for triangular arbitrage commonly fade away rapidly simply because of the reason that a large number of individuals seek for these opportunities.

Another reason behind this minimal possibility might be that everyone has the knowledge about the pricing relationship. In triangular arbitrage, one currency is converted into another, again it is changed over to a third currency and ultimately it is again converted into the original currency in between a short time period.

The chance of risk-free profit comes up at the time when the conversion rates of the currencies are not equal. The chances from triangular arbitrage occur seldom and they are only present for a small period of time. The arbitrageurs who take the benefits of triangular arbitrage commonly utilize sophisticated computer devices and/or software programs for automating the procedure.

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Last Updated on : 1st July 2013

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