Triangular Arbitrage
a.k.a. Triangle arbitrage
Profiting from a momentary pricing mismatch between three currency pairs by trading through all three in a loop.
Triangular arbitrage exploits three exchange rates that do not quite add up. If the EUR/USD and USD/JPY rates imply EUR/JPY should be 162.00, but someone quotes EUR/JPY at 162.20, you can loop: dollars to euros, euros to yen, yen back to dollars, and end with slightly more than you started.
In practice, these gaps are tiny and vanish in milliseconds, picked off by bank and high-frequency algorithms. For retail traders, spreads and latency make it essentially impossible. It is mainly useful for understanding why cross rates stay in line.
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