What is Forex Arbitrage?

Forex arbitrage is a way to make money in the currency market by a locating a currency pair that is not priced right and buying or selling it against another currency pair to maximize the difference. This is a fast-paced market and these opportunities do not last long.

The currency market is the market that deals in money from different countries. These are grouped into together into pairs, any set of pairs traders want. For example, in the Euro/US dollar pair the Euro value is compared to the value of the dollar. If the Euro value goes up, the dollar value will drop. The Euro may be worth 1.0378, which means for every Euro purchased, it will cost $1.0378 in US dollars.

In the currency arbitrage Forex market traders compare the one pair of currency against another, looking for the opportunity where buying one pair of currencies and selling another will make a profit for the trader. This happens when the Forex currency market is not trading efficiently and a value of one currency is higher or lower than it should be. Traders of this market actually help stabilize the world currencies through these kinds of trades; they bring balance back to the money system.

Traders have to analyze these trades quickly and react swiftly to take advantage of temporary market opportunities. This requires accurate calculations; doing this math on a hand-held calculator would be too slow and cumbersome. There are a number of pricing calculators available to do the math and locate currencies to trade at a cost from third parties and Forex brokers. Many of these programs offer demonstration accounts where interested investors can try the program. It is important to try a program before buying one. These demo accounts are a free service.

These traders need two things to be successful in the Forex market. The trader needs real-time price quotes from an accurate source; these are the actual prices the currency pairs are trading at that second. These can be purchased from a data provider that specializes in this information and requires a high-speed Internet connection. The trader also needs super fast reactions. The trader needs to be able to see, process and react quickly before the opportunity to make money is gone.

Many successful traders make money using the Forex arbitrage trading method. These investors enjoy looking for and finding currency pairs that are mispriced and acting quickly to take advantage of that investment opportunity.

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