How To Take The Opportunity Of Making A Riskless Profit Through Triangular Arbitrage In Iran!

Arbitrage is a trading strategy designed to profit from small differences in prices of similar or identical assets. In general, Arbitrage strategy should neither requires a capital nor contains any risk. According to the market hypothesis, an Arbitrage does not exist in normal conditions of trade, when market prices move near equilibrium points within markets. Nevertheless, the opportunity for arbitrage will occur when inefficiencies arise in a market. At this moment, currencies can be priced wrongly because of insufficient information or delays in price quoting among the participant of markets.

What Is a Triangular Arbitrage in Foreign Exchange?

Each local market is affected by temporary uproars and conditions, which will result in price discrepancies. Triangular arbitrage is the result of differences between three foreign currencies which occurs when the exchange rate of the currencies do not exactly match up.

Successful arbitrage transactions in foreign exchange consist of buying in the weak market and instantaneously selling in the strong markets. Exchange arbitrage also depends upon effective communication and active connections between the markets operated in. Markets need to have knowledge of international price movements and ability to make rapid calculations in order to take advantage of frequently temporary price conditions. Finally, since arbitrage profits are small in comparison with the amount of money involved, in order for this form of arbitrage to be profitable, a trader must trade a large amount of capital.

Foreign Exchange Arbitrage in Iran

Two months ago the arbitrage of exchange was highly significant in Iran, however, after publication, of an article about arbitration in foreign exchanges in Iran, the profit of this trading strategy has been decreased significantly. The below tables will provide the evidence about this fact and the way of calculating the arbitration.

The table above shows the latest exchange rate in Iran. (Nevertheless, this is an example and the rates can be changed every 90 seconds. ) The column in the middle indicates the profits which are arisen as a calculation of the arbitrage.

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Calculation Method:

• Example 1: 1 Euro is equal to 1.16 Dollar (according to Google's currency disclaimer) * the rate of 1 US Dollar in Iran (4054 Toman) = 4702.64 Toman for each dollar received in other countries / the selling price. ==> In another word: 1.16 * 4054 T= 4702.64 T which is lower from the price in Iran. Each Euro in Iran costs: 4785 Toman which should be then deducted from 4702.64 and the price differences would be 82.36 tomans in each dollar. This profit might not be significant, however, it will be highly profitable in large amounts of trade.

• Example 2: 1 Dollar is equal to 1.28 Canadian Dollar * current Canadian rate in toman (3241) = 4,148.48 sell price in Iran after the change then - 4054 = 94.48 benefit of each dollar.

What should be considered are firstly the rates are taken on a day which was a weekend in Iran and secondly in each selling and buying roughly about 2% will be deducted from the exchange charges.

In conclusion, arbitrage opportunities may arise less frequently in markets than some other profit-making opportunities, but they do appear on occasion. Economists, in fact, consider arbitrage to be a key element in maintaining the fluidity of market conditions as arbitrageurs help bring prices across markets into balance.