triangle arbitrage

N

n00b7r4d3r

if i go short eur/usd short usd/jpy long eur/jpy under normal circumstances i would have a net of 0 am i correct? (neglect the spread) then all i have to do is wait until there is a divergence in my favor (or simply enter when the divergence occurs) due to certain pairs being oversold/overbought right? free $$$ right?

Does this ever happen to a degree that it is pratical for some guy with a forex mini account and some C++ knowledge to exploit even if it happens like once a month and yeilds $3 or do i need a T1 line with a ping of 20ms and a program that has been written in assembly on a quadcore computer sending the orders out?
 
In short, no. Dealing firms have triangular-arb algorithms which keep exploitable opportunities from happening. Barring that, you'd need to overcome 4.5 pips on any of the tri-permutations on the majors.
 
Quote from n00b7r4d3r:

was there ever a time when you could do this?
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No, the electronic dealers have been privy to this from before there was internet-dealing. There are inter-dealer arbs available, but the pickings are slim. On an order of less than half a pip if you're lucky. I have C++ APIs running on bleeding edge hardware and fiber and it's not worth the effort.
 
Even if it was possible, how are you supposed to play the arb since you have 3 underlyings?

You may have to point which pair created the opportunity. Am I right?

Sorry, I cant't figure it out...

Thanks.
 
And don't forget that not only will you have three pair spreads working against you, you will have three sets of carry rates, and that interest is always going to work out against you as well.
 
Quote from Rhody Trader:

And don't forget that not only will you have three pair spreads working against you, you will have three sets of carry rates, and that interest is always going to work out against you as well.
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Right, swap spreads as well.
 
Quote from n00b7r4d3r:

was there ever a time when you could do this?
More...

yes - but only in small size and very rarely. You can't base your trading income on that. Additionally nowadays it is likely not possible at all.
I remember about 2 year ago when BOJ was intervening you could pick some chips during Asian hours, i.e. when Europe/America was asleep. In particular I remember trading EUR future against EUR minifuture riskless for few pips...so it was not even triangular but the same risk factor!
I do not actively trade FX anymore...
 
would i be wasting my time looking for arbitrage in more complex situations (in forex or other markets)? if they do exist how hard are they to find?
 
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