Paul P_ O’Neil#74

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What is triangular arbitrage in forex?

Triangular arbitrage exploits price discrepancies between three currency pairs. For example, if EUR/USD, USD/JPY, and EUR/JPY quotes are inconsistent, a trader can cycle trades through all three pairs, locking in a risk-free profit. This opportunity relies on execution speed and deep liquidity, making it primarily accessible to institutions with co-located servers. In modern electronic markets, pure triangular arbitrage opportunities vanish within milliseconds. Retail traders rarely capture them due to latency. However, studying triangular arbitrage improves understanding of how forex pricing maintains efficiency. It shows why spreads and broker quality matter—any inefficiencies are quickly exploited by sophisticated players.