What is triangular arbitrage

October 11, 2024

Triangular arbitrage, or cross-currency or three-point arbitrage, takes advantage of mismatched exchange rates among three currencies in the forex market. It involves a sequence of trades: converting the first currency to a second, the second to a third, and then back to the original currency. The potential profit comes from differences in rates during the second transaction. However, these opportunities are infrequent, as market participants swiftly exploit them, driving rates to adjust and eliminating the profit potential.