Triangular Arbitrage

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cfaboston28

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Does anyone have any simple method to find if TA is possible?
CAD/USD - 1.2138-1.2259
Real/USD - 2.3844 - 2.4082
If CAD/Real bid rate is .525.
Find TA with initial investment of 1m USD.
Show your calculations.
 
1000 K USD -> 2384.4 K REAL -> 1251.81 CAD -> 1021.13549229 USD
= 21135.49229 USD TA ?
 
answer is correct. Welldone homies. I don’t know how do you convert it.
I NEED LESSONS
 
No clue how to explain it- check the implied cross rate vs the stated cross rate
1.2138/2.3844 = .509056
.509056 < .525
I think you buy real, swith to cad and bring it back to usd for like 20-30k arb profits? im unsure because i dont know when to use bid vs ask
if you buy real at the Real/USD bid 1m = 2.3844m
buy cad at the CAD/Real bid 2.3844m = 1.25181m
buy usd at the CAD/USD ask 1.25181m = 1.021m
1.021-1 = .021
Any suggestions on which to use bid v. ask??
 
multiply by the smaller #
divide by the bigger #
you get f*cked converting every time. just go around with that in mind- if you’re having troubles, i’d suggest writing out USD/CAD x CAD/REAL or whatever and cxl them out to make sure you’re getting to the right currency.. but you just go around and get back to your base currency. One way will have you at a loss, the other way at a gain if there’s arb. This one kind of made it easy- only gave a CAD/REAL bid side so you knew which way to go and saved a step. Thx schweser… that was nice of you.
I can’t do much, but tri-arb makes sense to me and I do them in 3 seconds.
I hope it’s lots of tri-arb and zero BOP on the test.
 
I usually write the currencies along and try using a multiplier or divider that will cancel the currency units and get me the needed currency unit. It’s all intuitive but difficult to explain.
 
cfabos,
I make a chart with all the bid/ask to organize all my information then basically go up the bid and down the ask. It works for me everytime - also works for figuring out bid-ask cross rates. It takes a few mins to set up but I get the Q right everytime. Works well if you have an entire six question vig on fx. I can show it to you in person if you like.
 
“go up the bid and down the ask”
Can you elaborate on that? Saw this in schweser videos but did not understand what it means to go up the bid and down the ask….
I get the conversions right, I can always figure out if there is an arb opportunity, but struggle with how to actually perform the arbitrage.
 
Think of a triangle …. you can go left to right or right to left. If you’re going “up” the triangle, use the bid, and if you’re going “down”, use the ask.
 
bipolar sent you an email today.
I will review it again today from Schweser. They had given a nice way to do in last year’s secret sauce…need to find that.
Thanks guys
 
I sent a whole day on Econ (~10hrs) and really thought about what a bid/ask rate for FX really ment (it really helped on all other FX questions).
Lets say you have a quote from the dealer for CAD/JPY of 1.50-.51 (making these numbers up).
their Bid is 1.5CAD/1JPY, which means you are buying CAD and selling JPY (up the bid)
their ask is 1.51CAD/1JPY, which means you are buying JPY and selling CAD (down the ask).
 
but you always buy at ask and sell at bid.
“their Bid is 1.5CAD/1JPY, which means you are buying CAD and selling JPY (up the bid) ”
so if I am canadian, I will buy at 1.51 (ask) and sell at 1.50. I still do not understand it.
 
i just remember that i’m the worse off always and it works.
let’s say you had $1. bid-ask was 1.2 CAD/$ x 2 CAD/$ (big spread to make it obvious). If you’re converting your $$ from USD to CAD- what makes you worse off?
1 x 1.2 or 1 x 2? The 1 x 1.2. Fine, use that.
What if you had $1 and bid-ask was $1.2/CAD x $2/CAD
you want to convert to CAD- what makes you worse off?
1/1.2 or 1/2. 1/2 is worse, use that.
multiply by the smaller #, divide by the bigger one. you as the average joe are always going to be worse off on bid/ask spreads. you won’t go wrong. I have no idea what this up the bid stuff is. but you the retail average joe guy will always get jammed if you’re doing forex- use the one that jams you.
 
swaptiongamma Wrote:
——————————————————-
> Bid of 1.50 CAD/JPY means - bank is willing to buy
> JPY for CAD at 1.50, no?
exactly. I am thinking of my perspective. If I go to dealer, he will sell me at 1.51
 
swap, ur right, but u already got the question right so just ignore what i am saying and keep on doing whatever you are doing
cfabos, i really took me hours to figure out what currency you are buying at their bid and what you are buying at the ask.
All you really need to know by “up the bid and down the ask” is that…
at the bid quote you are selling the denominator and buying the numerator. at the ask quote you are selling the numerator and buying the denominator. I make a chart and use arrows to show me the direction (really helps)
 
their Bid is 1.5CAD/1JPY - they’ll buy it from you, you sell it there.
they bid to buy it from you (you sell it)
ask- they offer to sell it to you (you buy it)
you are mr retail- buy at the offer, sell at the bid.
so SG, yes, you have it right.
 
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