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Originally Posted by mmont
This trade becomes dependant of EUR and JPY thus EURJPY pair.
I repeat, the trade is EUR vs JPY. How each moves against the buck is not
necessarily
how they move against each other.
If you consider yourself the teacher then you should know it's not clear an egg is boiled unless you break it ( or spin it ).
So forget about International Finance and Triangular Arbitrage and do a quick look back at the price action thats under your nose. Do some " arithmetic " dont even need math, and you will see the light.
Why are this forum members so agresive.
Jezz, lighten up, it's a discussion.
Let me know how your research comes out.
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well, well, and I repeat that if EURJPY does not depend on EURUSD and USDJPY move then there will be opportunity of risk free pips which is known as Triangular Arbitrage. I will provide you with an example and I think you will understand.
Bid prices: EURUSD = 1.2650 USDJPY = 117.50 EURJPY = 148.63. in this case EURJPY = EURUSD*USDJPY.
Now assume that EURUSD moves to 1.2610 and USDJPY to 117.60. With my approach EURJPY (bid price) should move to 1.2610*117.6 = 148.29.
Now let us discuss your approach. with your approach EURJPY does not depend on EURUSD and USDJPY moves, if it is so then let us consider that when EURUSD moves to 1.2610 and USDJPY to 117.6 EURJPY moves to 148.50. No we are doing following to get risk free profits. Let take that we do not trade forex on leverage account, we have cash and do following:
We buy 100 000 EURUSD at 1.2610, thus paying 126 100 USD, then with this 100 000 EUR we buy JPY and we get 14850000 with this 14850000 JPY we buy 126275.5 USD (USDJPY = 117.6). NOW DO YOU UNDERSTNAD HOW WE BOOKED 175.5 NET PROFITS WITHOUT TAKING RISK????? SO IF CROSS DOES NOT MOVES AS MOVES ITS COMPONENT THEN WE CAN MAKE RISK FREE PROFITS AND DOING SO ON A REGULAR BASIS AND WHEN EVERY TRADER DOES SO THEN TRIANGULAR ARBITRAGE DISAPPEARS. THIS IS EFFICIENCE OF THE FOREX MARKET. I REMEMBER IT HAPPENED ON RUR RATE IN RUSSIA.