What is Forex Arbitrage?

[moonchild]

Forex Arbitrage is the act of taking advantage of price changes between different currency pairs, this can be done by researching a weak currency that is on a free fall and then exchanging it with a stable currency.

For example, In 2015 a dollar is 300 naira and fast forward to 2022, a dollar is 600 naira, which is a whooping increase of 100% within a year, if you bought 2000$ at 300naira, you'll have 4000$ naira equivalent in presently, this is how arbitrage works, you buy low and sell high over time.

The difference between forex arbitrage and forex Trading is, in Forex Trading you take advantage of minute changes of prices while arbitrage on the other hand is when you hold a weaker currency for a long time to benefit from the price change overtime.

To start forex arbitrage you have to research a currency with a weak domination and most of this currency are African countries that have internal issues.

Arbitrage trading can be done in real time by buying currencies traditionally at a currency exchange spot or online through forex brokers and then holding a position for a long time to realise profits.

Arbitrage trading requires a decent capital to make a good profit margin.

 

[Jasz]

The difference between forex arbitrage and trading arbitrage is that forex arbitrage takes advantage of the simultaneous buying and selling of a currency on different markets, while trading arbitrage involves taking advantage of price discrepancies in individual financial instruments.

Forex arbitrage is not totally a risk-free strategy to me, if you are from Nigeria. It involves the simultaneous buying and selling of currencies on different markets to take advantage of differences in exchange rates. The trade is profitable because the trader will be able to buy the currency at a low price on one market and sell it at a higher price on another.

Trading arbitrage is also known as merger or convertible bond arbitrage. In this case, an investor takes advantage of price discrepancies between individual financial instruments, for example, two stocks that are part of a merger agreement. The trade is profitable because the investor will be able to purchase the security at an undervalued price and then sell it for more once the merger has been completed.

For example, suppose that IBM stock is trading on NASDAQ for $100 while it is simultaneously trading on NYSE for $99. If an investor can buy and sell the stock fast enough to exploit this difference (and there's always a small chance that this difference will disappear before the transactions can be made), then they will reap a profit of $1 per share without taking any risk at all.