CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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ThinkMarkets > Support > FAQs > Trading FAQs > What is arbitrage in forex trading?
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What is arbitrage in forex trading?

Arbitrage is defined as taking advantage of a mispriced asset. This is very uncommon in the forex world, but it can happen occasionally.

The most common form of arbitrage is to have a couple of different brokerage accounts, waiting to see whether or not one of the brokers misquotes a currency or sees a currency pair move before the other one. The idea is that if the pair is moving higher and faster, or lower and faster than the other one, you will place your trade with the slower moving broker in order to take advantage of what you already see happening in the other platform.

Having said that, most brokers use a handful of liquidity providers so these opportunities have all but disappeared. Beyond that, most arbitrage opportunities are taken advantage of by multimillion dollar computer systems and large trading firms, meaning that it’s very unlikely you will be able to jump in front of those traders due to the technology constraints.

All of that being said, sometimes people can take advantage of arbitrage by doing something called 'triangulation.' In other words, looking at three different currencies.

One example might be the EUR/USD, GBP/USD, and EUR/GBP pairs. If the Euro is moving higher against the US dollar while the pound is moving lower, the understanding is that in theory at least, the EUR/GBP pair should be rising as the Euro is the strongest of the two currencies based upon its movement against the world’s reserve currency, the US dollar.

If you do not see that happening, you know there is an arbitrage possibility, because eventually the market will play 'catch-up' as the difference between the currencies is most greatly reflected against the US dollar as those are both major pairs.

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Risk warning for retail traders: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Risk warning for qualified professional traders:  Derivative products are leveraged products and can result in losses that exceed initial deposits. Please ensure you fully understand the risks associated with a professional trading account. Tax laws depend on individual circumstances and may differ in a jurisdiction other than the UK.
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