Have you ever wondered how to correctly size positions between the underlying pair and its synthetics to eliminate or hedge directional risk? This article describes how to calculate triangular arbitrage lot size to fully hedge all exposure when initiating a triangular arbitrage trade. The arbitrage trade is at the heart of all good strategies that take advantage of inefficiency. In the forex market this means triangular arbitrage, so understanding how to correctly size positions to eliminate or minimize individual currency risk is very important.
- What triangular arbitrage lot size should be traded to capture this 6 pip inefficiency?
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