Currency Arbitrage

Arbitrage takes advantage of price differences that can occur when the same thing trades on different markets simultaneously.

Currency arbitrage targets the foreign exchange market.

The dollar trades against the yen, and simultaneously trades against the euro. Meanwhile, the euro and yen trade against each other. In certain cases, a trader can take advantage of the triangular trade, selling dollars for euros, euros for yen, and then yen back into dollars. If the trader catches the market right, a small profit can be booked this way.

Like using Google Translate to turn a phrase from English to Japanese to German and then back to English, you don't get back exactly what you put in. Currency arbitrage traders hope that what comes back...is more than they started with.