Triangular arbitrage is the process that ensures that all exchange rates are mutually consistent.

Triangular arbitrage is the result of a discrepancy between three foreign currencies that occurs when the currency's exchange rates do not exactly match up. These opportunities are rare and traders who take advantage of them usually have advanced computer equipment and/or programs to automate the process.

Where have you heard about triangular arbitrage?

Opportunities for this method of forex trading are very rare, and traders who manage to capitalize on it usually have sophisticated computer programs to automate the process.

What you need to know about triangular arbitrage.

By buying and selling imbalanced currencies, you can in theory make a risk-free profit, but if you're not quick enough you can lose out.

Suppose the Japanese yen is ahead of the euro. You might carry out a triangular arbitrage to get a bigger return for the exchange. You exchange British pounds for yen at one rate, convert it again to euros, and then convert it back to the original pounds to net a profit.

Price differences between exchange rates are tiny, so you must have a large amount of capital for this form of arbitrage to be worthwhile.