Triangular Forex Arbitrage Across EURGBP, EURUSD, and GBPUSD
Summary
This document describes an automated triangular arbitrage approach using EURGBP, EURUSD, and GBPUSD. The system derives a theoretical cross rate from two currency pairs, compares it with the quoted third pair, and checks whether the gap could cover spreads and commissions. When the difference appears sufficient, it places trades across the three pairs and manages the resulting positions as market prices change.
Position size is scaled to account balance, while a commission input is included in the opportunity calculation. An optional setting records the largest observed discrepancy. The document outlines the intended mechanics but provides no code, measured performance, or detailed execution model, so it does not establish that opportunities can be captured reliably. It specifically cautions that execution speed, liquidity, and broker constraints can undermine apparent backtest profitability. In practice, slippage, quote synchronization, and transaction costs would also need careful assessment before treating a displayed price mismatch as realizable arbitrage.
Key ideas
- Triangular arbitrage compares a quoted cross rate with the rate implied by two related currency pairs.
- A candidate trade should account for spreads and commissions before execution.
- The described system opens trades across all three pairs and manages positions as prices move.
- Trade size scales with account balance, and a setting can record the largest observed price gap.
- Backtest results may not transfer to live trading when speed, liquidity, and broker constraints differ.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.