ARBITRAGE TRADING
FOREX ARBITRAGE TRADING STRATEGIES & HOW TO USE THEM EFFECTIVELY
Forex Arbitrage Trading Let's talk about what arbitrage trading is first: In forex what this means, is traders are buying a cheaper version of a currency and selling a more expensive version at the same time. Then by subtracting the transactions costs, their profit remains the difference between the two prices. Arbitrage traders may try to take advantage of differences in spot rates and currency futures. Futures are contracts which agree to trade at a certain date in the future for a particular price, forex broker arbitrage can happen when two brokers offer different quotes for the same currency pair. In the retail forex sector, prices between brokers are normally uniform. Therefore, the occurrence of the strategy occurs more at the institutional level. But this isn’t the only type of arbitrage trading.
Forex Arbitrage Strategies Triangular Arbitrage Strategy  This is a forex strategy used by counteracting trades to profit from price movements in the forex market. Let’s run through the basic of a currency pair to help you understand how this is going to work. When you take a trade in the forex market, you are effectively taking two positions, buying the first named currency and selling the second.
Forex Statistical Arbitrage This takes a look at the quantitative approach and looks to see future price divergences. This looks at bringing an overall collection of over-performing pairs and underperforming pairs, the view will be to sell the over-performers and buy the underperformers. The reason for doing this is that the currency pairs will revert to the mean over time, you want a tight historical correlation between the two sets of pairs being used.
Limitations of the Strategy The strategy will require you to have the fastest price feeds available, as it will be too difficult to exploit small price changes without it. Always ensure you try the strategy out on a demo before jumping into a live account with it. Due to the number of people using the arbitrage system, overpriced pairs will be pushed down in price when selling and under-priced pairs will be pushed up when buying, therefore, decreasing the difference in price between the two. Money makes money, ensure you have plenty of capital and leverage in the account to make this work for you.
Conclusion
ď‚š Like with any trading strategy, it is subject to risk. The competition in the market makes it hard to spot these opportunities in the market. You will find them but be prepared to use capital and take the time to watch the screen closely.
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