Forex Arbitrage

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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.

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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. Is there a difference between financial spread betting and arbitrage?

    Financial spread betting is a type of speculation that involves a highly leveraged derivative product, whereas arbitrage ... Read Full Answer >>
  3. What are the goals of covered interest arbitrage?

    The goals of covered interest arbitrage include enabling investors to trade volatile currency pairs without risk as well ... Read Full Answer >>
  4. How does arbitrage affect the price of exchange traded funds (ETFs)?

    Arbitrage may be used to bring the market value of an exchange-traded fund (ETF) back into line with the net asset value ... Read Full Answer >>
  5. How valuable is the forward rate as an overall economic indicator?

    Any given forward rate is theoretically equal to its corresponding spot rate plus future expectations. Many investors and ... Read Full Answer >>
  6. 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 >>
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