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Forex Articles

What is Forex Arbitrage

There is serious money in the Forex trading business but this business full of risk because as you trade currency pairs, any miscalculation on your part may lead to huge losses. Again, the international currency market may turn against you without warning. When this happens, you are likely to lose money. However, there is a risk-free method of trading currency pairs and this is called Forex arbitrage. Below are some things you should know about arbitrage and why it makes sense to trade this way.

Understanding Forex Arbitrage

Forex arbitrage is a risk-free strategy so it follows that when you use this strategy, you have the opportunity to make money without risking your capital. As a forex trader, there are times you are presented with the rare opportunity to make a profit from currency transactions even without open currency exposure. The important thing here is that you have to keep your eyes wide open and look out for these opportunities. The arbitrage opportunity only presents itself when there are pricing inefficiencies between two different markets. By taking advantage of this opportunity, you can simply buy and sell different currency pairs and make money in the short term.

When to Look out for Arbitrage Opportunities

As stated already, Forex arbitrage opportunities don’t always present themselves to currency traders. However, smart traders can look for these opportunities during news events when the chances of volatility are relatively high. For instance, news of an important economic event or a sudden change in the political equation in an important country might lead to fluctuations in currency prices. An earthquake or a stock market collapse in an influential country may also lead to volatility in currency prices. With the currency market in a flux, there are definitely opportunities for smart Forex traders to take advantage of the volatility and make risk-free money.

Using the Forex Arbitrage Calculator

As a Forex trader, trying to find the right arbitrage opportunity manually can be frustrating and time-consuming. However, you can make things easier for yourself by investing in the right tools. One of the best tools for smart traders is the Forex arbitrage calculator. This tool provides you with real time arbitrage opportunities and saves you a lot of time. Now, before you go rushing off to buy this tool, you should understand that these tools don’t always guarantee you profitable transactions. The smart move is to choose your arbitrage calculator carefully and use it wisely. To minimize risk, you should carry out a number of demo transactions with your arbitrage calculator first. Once you are happy with the results from the demo treading sessions, you can go ahead and trade with real money.

Be Versatile

In the Forex trading business, it pays to be creative and versatile. Do not concentrate on only one currency pair. Try out different currency pairs and concentrate on the pair that is most likely to bring you consistent profits. Finally, you should take advantage of opportunities and increase your stake when the arbitrage opportunity presents itself. This way, you will make good money from this risk-free strategy.