Hey guys,
Triangular arbitrage is starting to get on my nerves. I have done a couple of questions and basically, everytime I set up the triangle, I end up with a loss! which means i basically have to go back the OTHER way round to get the real arb profit.
This could be a stupid question but how do I set it up so i can get the arb profit on the first run? that is, going clockwise once and then getting the profit!
I undertand the concepts and how it works, but this last part is my heel!
isn’t which direction you choose just pot luck (i.e. 50/50)? It was my impression that there wasn’t really a method to getting the direction correct on the first time.
To determine the direction, you have to compute the implied cross rate and then compare to dealer quotes. Or skip the computation of implied cross rate and do one go around and possibly get lucky and find the arbitrage direction…
There is DEFINITELY a method to this. It is NOT random… Perhaps I’ll drop in later and explain myself.
Are you guys talking about these? No arbitrage condition A/B = (A/C)/(B/C) Clockwise direction A/B less than [A/C]/(B/C) 1 sell A and buy B 2 sell B and buy C 3 sell C and buy A Anti-clockwise direction A/B > (A/C)/B/C 1 sell A and buy C 2 sell C and buy B 3 sell B and buy A [Example] Exchange rates are quoted in Sydney, Auckland and Hong Kong: HKD/AUD = 4.1548 NZD/AUD = 1.2052 HKD/NZD = 3.5825 Equilibrium condition 3.5825 =HKD/NZD > (HKD/AUD)/NZD/AUD=4.1548/1.2052= 3.4474 Anti-clockwise triangular arbitrage 1 Sell 1 HKD for AUD -> 1/4.1548 = 0.2407 AUD 2 Sell 0.2407 AUD for NZD -> 0.2407* 1.2052 = 0.2901 NZD 3 Sell 0.2901 NZD for HKD -> 0.2901 *3.5825 = 1.0392 HKD profitable because we started with 1hkd and end up with 1.0392 hkd
Yup