Quick question, Nexran Econ

The dealer is posting an offer rate to sell the EUR at a rate below the interbank bid rate. Thus, triangular arbitrage would involve buying EUR from the dealer at 1.0746 (offer) and selling it in the interbank market at 1.0751 (bid) for a profit of CHF0.0005 (1.0751 – 1.0746) per EUR.

CHF/EUR Bid / Offer Interbank 1.0751/1.0756 Dealer 1.0741/1.0746

Why do you have to buy at the dealer offer rate, and sell at interbank bid rate but not buy at dealer bid rate, and sell at interbank offer rate?

I thought when you buy a currency you buy at the lower bid rate.

Because as a counterparty in FX transnaction you are not dealer nor bank so the rule for you is buy base currency at ask and sell base at bid. So this is the only solution.

To quote S2000magician, “Dealers are cheapskates”. They will always want to make a profit, so they will always give you a lower price for something than they would sell the same thing to you for. Dealers buy low and sell high, with their profit represented by their listed spread.

You, as the arbitrageur, would have to buy at the ask and sell at the bid, and this is why the arbitrage opportunity exists in this question. The dealer’s ASK is lower than the Interbank’s BID. So you buy at the dealer’s ask and immediately sell at the Interbank’s bid, earning a 5 basis point risk free profit.