Triangular Arbitrage

Triangular arbitrage is a sophisticated foreign exchange (FX) trading strategy that exploits a momentary pricing discrepancy among three different currencies in the interbank market, allowing a trader to profit from the imbalance by executing three simultaneous, offsetting trades that result in a risk-free gain. This form of arbitrage is a critical mechanism that ensures the cross-exchange rates of currencies remain consistent with their respective bilateral exchange rates, with opportunities typically vanishing within milliseconds due to the efficiency of modern high-frequency trading (HFT) algorithms.