Forex Arbitrage

AAA

DEFINITION of 'Forex Arbitrage'

A trading strategy that is used by forex traders who attempt to make a profit on the inefficiency in the pricing of currency pairs. The strategy involves reacting quickly to opportunities, and is usually accomplished through the use of computers.

INVESTOPEDIA EXPLAINS 'Forex Arbitrage'

As with other arbitrage strategies, the act of exploiting pricing inefficiencies will actually correct the problem in the market. For this reason, these opportunities are often only around for a very short time. Arbitrage currency trading requires the availability of real-time pricing quotes and the ability react quickly as opportunities present themselves.

Forex arbitrage calculators are available to help find these opportunities more quickly, but as with all software, programs and platforms used in retail forex trading, it is important to try them out in a demo account if possible. Trying out multiple products before deciding on one is the only way to determine what is best for the forex trader.

RELATED TERMS
  1. Daily Cut-Off

    In the forex market, a particular point in time specified by ...
  2. Quote Currency

    The second currency quoted in a currency pair in forex. In a ...
  3. Base Currency

    The first currency quoted in a currency pair on forex. It is ...
  4. Forex Futures

    An exchange-traded contract to buy or sell a specified amount ...
  5. Currency Pair

    The quotation and pricing structure of the currencies traded ...
  6. USD

    In currencies, this is the abbreviation for the U.S. dollar. ...
RELATED FAQS
  1. How do I use an arbitrage strategy in forex trading?

    Forex arbitrage is a risk-free trading strategy that allows retail forex traders to make a profit with no open currency exposure. ... Read Full Answer >>
  2. How do I close a long position in forex?

    Closing a long position in forex trading depends on whether you are using a broker operating under U.S. trading regulations. In ... Read Full Answer >>
  3. Where did the term 'pip' in currency exchange come from?

    The term pip is an acronym for percentage in point or price interest point. It measures a unit of change within a pair of ... Read Full Answer >>
  4. How does a merger affect the shareholders?

    A merger affects the shareholders of both companies in different ways and is influenced by several factors, including the ... Read Full Answer >>
  5. How do I find positive correlation in the stock market?

    Positive correlation refers to a statistical relationship in which two variables generally move in the same direction together. ... Read Full Answer >>
  6. How do changes in national interest rates affect a currency's value and exchange ...

    All other factors being equal, higher interest rates in a country increase the value of that country's currency relative ... Read Full Answer >>
Related Articles
  1. Options & Futures

    A Primer On The Forex Market

    Moving from equities to currencies requires you to adjust how you interpret quotes, margin, spreads and rollovers.
  2. Options & Futures

    Using Interest Rate Parity To Trade Forex

    Learn the basics of forward exchange rates and hedging strategies to understand interest rate parity.
  3. Forex Education

    Top 7 Questions About Currency Trading Answered

    Whether you're puzzled by pips or curious about carry trades, your queries are answered here.
  4. Options & Futures

    Getting Started In Forex

    Before entering this market, you should define what you need from your broker and from your strategy.
  5. Economics

    Can The U.S Close Its Trade Deficit?

    The stronger dollar could have increased the U.S. trade deficit. Instead, economic growth issues abroad and falling oil prices have helped shrink it.
  6. Forex Education

    What Are IMF Special Drawing Rights?

    Technically, the SDR is neither a currency, nor a claim on the IMF itself.
  7. Trading Strategies

    Trade Forex Through Inside Day Breakout Strategy

    Inside day breakout is a popular strategy for forex trading. Here's how to recognize the patterns, entry/exit points and trading scenarios.
  8. Economics

    Who Benefits From South Korea's Lowered Interest Rates?

    South Korea is the latest country to cut interest rates in an attempt to stimulate economic growth.
  9. Investing

    Why Is Arbitrage Trading Legal?

    Not only is arbitrage legal in the US and most developed countries, it can be beneficial to the overall health of a market.
  10. Mutual Funds & ETFs

    How ETF Arbitrage Works

    ETF arbitrage brings the market price of ETFs back in line with net asset values when divergence happens. But how does ETF arbitrage work?

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center