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?

  • $\begingroup$ I am not a specialist in CFD but they are derivatives contracts, right? In that sense, the arbitrage you described allows you to enter a strategy in which you get paid at the initialization but do not have any risk after that because at maturity you will end-up buying and selling currencies that will exactly match with one another. An arbitrage may require to let positions open if the global risk exposure exactly 0 because being offset between all your positions. $\endgroup$
    – Louis. B
    Nov 13 '15 at 21:09
  • $\begingroup$ So if I have opened the position at the exact price for arbitrage I can close them whenever I want? $\endgroup$
    – sparkle
    Nov 14 '15 at 13:46
  • 1
    $\begingroup$ I think that you can enter the strategy when you see the arbitrage and then once the arbitrage disappears, you can sell all your contact for zero net loss (since no arbitrage then holds). However if you assume that the arbitrage never disappears I don't think you can benefit from that with CFD contract it may require to directly buy and sell the currencies. Again I'm not sure how CFD work but if they are really like swaps or forward contracts with cash-settlement, this would be the way to proceed (to wait until maturity or unwind your position when prices adjust to no arbitrage). $\endgroup$
    – Louis. B
    Nov 14 '15 at 21:14

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