Forex arbitrage: What’s behind it?

Forex ArbitrageIm Arbitrage Trading (not only on the FX market) is trying to achieve a risk-free profit by taking advantage of minimal, short-term price inefficiencies. Such market participants, also referred to as arbitrageurs, contribute to the efficient pricing of the markets. The necessary condition for arbitrage trading is the ability to quickly place multiple orders in a market without a broker spread. For this reason, private investors can implement forex arbitrage practically exclusively with ECN brokers, which allow the placement of orders directly into the order book.

This content is examined in more detail below:

1. Arbitrage at a Glance

2. Forex Arbitrage Example

3. Other Forex trading strategies

1. Arbitrage at a Glance

Arbitrage exploits short-lived price inefficiencies for risk-free profits.

The prerequisite for arbitrage is to quickly place several orders directly into the order book.

For arbitrage and scalping are best ECN brokers.

The respective trading strategy should match the trading behaviour and the trading level of the trader.

Basically, no trade without a strategy!

Fibonacci retracements are recurring key figures used to determine course and correction goals.

Scalping and break out is particularly suitable for investors who want to trade in the short term.

2. Forex arbitrage explained with the help of an example

For a hypothetical forex arbitrage example, which is exaggerated in terms of price differences for reasons of clarity, the following three exchange rates were accepted: EUR/USD 1.20 – EUR/GBP 0.70 – GBP/USD 1.65.

A trader opens a position in the EUR/USD to 1.20: He buys 120,000 USD for 100,000 EUR. At the same time, he exchanged $120,000 for the course in 72,727 GBP. This can also be exchanged at the same time at a rate of 1.4286 euros per pound (the reverse listing of EUR/GBP 0.70) in euros. From this he receives 103,898 euros – and has thus earned a profit of 3898 euros.

As already indicated, arbitrage gains are unrealistic in these orders of magnitude. Per lot (100,000 units of the base currency) are often made only a few $ profit. However, since no positions are held over, no financing costs are incurred. By their influence on supply and demand, arbitrageurss themselves eliminate the inefficiencies in their sphere of activity (for example, the market place of an ECN broker). In practice, Forex arbitrage is only possible through software.

Only those who look closely and follow the curves attentively have the right strategy

Only those who look closely and follow the curves attentively have the right strategy

With the trade strategy arbitrage, the so-called Arbitrageur uses spatial and temporal price differences between different exchange rates in different foreign exchange markets for profits. Only through an ECN broker is forex arbitrage possible, as this allows a direct placing in the order Book of the Stock exchange. In short: Forex arbitrage is the profit from the price difference between two or more markets.

3. Further forex trading strategies for Successful trades

Trading strategies to trade with Forex, there are some. The important thing is that the trader finds out which strategy best suits him. Forex beginners should take care to choose a more straightforward and easy-to-understand forex strategy. It is also important to pay attention to well-thought-out and balanced money and risk management. On our rate donor pages forex-Handelsignale, forex-trend strategy and Forex-contra-trend-strategy we present popular and also for beginners suitable trading strategies in detail. In this guide, we want to take the completeness of the strategy for the successful forex trading.

Fibonacci Trading

The so-called Fibonacci retracements are recurring patterns, which are also recognizable in the price movements of the financial markets. The so-called Fibonacci number series dates back to the 12th century and was discovered by the Italian mathematician Leonardo da Pisa. The Fibonacci number series is a sequence of numbers to be continued to the infinite. Each number is calculated from the sum of the two preceding numbers: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144…

If you put two adjacent numbers in proportion and divide them, you get a result of 0.618. If you want to calculate the ratio of two other numbers, there are also important key figures for Fibonacci trading. In general, these figures are also referred to as the “golden section”, so that these numbers can be found in other parts of life. In forex trading these are

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