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How Triangular Arbitrage Works with CFD Positions

Article Quant Q&A · Author: sparkle
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Summary

The document raises a practical question about applying triangular arbitrage to CFDs. It describes a supposed mispricing across EUR/USD, USD/GBP, and GBP/EUR, then asks how to account for opening three long positions, keeping them open, and closing them into a euro-denominated account.

It provides no answer or worked method: the text is a question rather than an explanation of how to size and execute the legs or calculate realized profit. It therefore highlights the distinction between a temporary cross-rate discrepancy and the costs and cash flows of opening and closing leveraged positions, but offers no evidence that the stated price relationship is executable or profitable. Bid-ask spreads, financing, commissions, contract specifications, and execution timing are not discussed.

Key ideas

  • The question concerns a cross-rate discrepancy among three currency pairs traded through CFDs.
  • It distinguishes unrealized gains across open legs from the result after closing the positions.
  • The document does not explain how to size the legs or account for trading costs and CFD terms.
  • The stated price relationship alone does not establish an executable arbitrage opportunity.

Tags

ForexArbitrageExecution
Full text
# Triangular Arbitrage with CFD


# Triangular Arbitrage with CFD












I cannot understand how the triangular arbitrage fits with CFD.

Assuming there is an arbitrage opportunity: EUR/USD < USD/GBP * GBP/EUR

If I do this strategy:

- 1 Long on EUR/USD at Ask price

- 1 Long on USD/GBP at Ask price

- 1 Long on GBP/EUR at Ask price

I get a > 0 profit, but I have still 3 positions open. If I close all these three positions i get the amount converted in my Currency-based trading account (Eur). How should I adapt the "triangular arbitrage" with CFD when I have to Open and Close Position?

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.