What is forex arbitrage trading?
In our article about arbitrage trading we explained the principles: you buy a product and sell it at a higher price. Than you make a profit.
Forex is short for foreign exchange. This is the market where you can buy and sell currencies. With a worldwide daily turnover of over 5 trillion euro’s per day the biggest market of the world.
With thousands of providers, like banks and exchange offices, you can imagine that there are some price differences in the market.
When you are able to sell at a higher price than you buy, you can earn money on forex arbitrage trading.
Why are there price differences?
Imagine you and a friend both have 1.000 euro and you both want to buy dollars.
You find two banks close to each other. You echange your euros at the first bank, your friend at the second bank, both at the same time.
You will see that you have a different amount of dollars than your friend. How is that possible?
There is no central point, neither a central market, where rates of currencies are determined. The price is determined by demand and supply.
Because of all these decentralized markets, there will be price differences all the time.
Price of currencies
Currencies are always traded in pairs. For example euro to dollar, yen to pound and so on. The EURUSD pair is the most used pair in the forex market.
The demand and supplies varies all the time. For example the price of EURUSD depends on the demands for oil, interests of central banks, political situations etc.
The more news and changes in the world, the more the prices will fluctuate.
In normal circumstances most people won’t notice these fluctuations, but forex traders will because they trade in very big amounts and/or with a leverage.
In turbulent markets, the price differences will be high, and the opportunities of the forex arbitrage traders will increase.
Is forex trading profitable?
Forex trading can be highly profitable, but it has also big risks. If you want to trade in forex is highly recommended that you learn and practice a lot.
In forex trading, just as in stock trading, somehow you have to learn how to predict the trend.
By learning how to do that, you can earn a lot of money. If you are not experienced be very carefull in forex.
In stocks, if you predicted the trend wrong, you can always wait till the trend goes the other way. In forex, because of the leverage, it is possible to lose all the money you started with.
A much safer, and also profitable way, is forex arbitrage trading.
Arbitrage trading software
If you want to earn money with forex arbitrage trading, you need arbitrage trading software.
This software will search for arbitrage possibilities in the market. You don’t just need the software, you also need trading accounts at every provider (usually called broker) that’s connected to your software.
Besides you will need money on every account and you will need trading software that will execute trades very fast. Arbitrage possiblities won’t last long because brokers will try to adjust their prices ongoing.
As you see, besides knowledge, equipment and software you also need a certain amount of money.
Earning money with forex arbitrage trading
Now you know what arbitrage software is, how can you earn money?
Some companies in the world built a forex arbitrage platform. It took them years to improve, so that they can be profitable almost every trade.
Most important issue is speed. Opening and closing a position before the arbitrage possibilty is gone.
At least one of the forex arbitrage trading companies allows you to take part in their platform. You can open an account and connect to their platform. In exchange for a part of the profits you make, they will make your money grow.
What is the risk of arbitrage trading?
Arbitrade trades can exist because of price differences and lack of speed at brokers. The opening and closing of positions goes very fast.
The average duration of a trade is 5 seconds. The risk of currencierates changing in that period of time is as good as zero.
Also, the software is monitored by people 24 hours per day, so that’s an extra security.
Why share their software?
We get this question all the time, and the answer is not so hard.
Just as all banks, forex arbitrage traders need clients to keep their system running.
As explained it takes a lot time, knowledge and money for development. When companies alow clients to take advantage of their software in return for a part of their profit, everybody wins.
This way they have enough funds to keep the platform up to date, because technology changes fast.