# [RS]Triangular Arbitrage V0

440 7
oops, looks like i messed up, need to rework a few thing and repost later.
```study(title='[RS]Triangular Arbitrage V0', overlay=false)
src = input(title='Source series to compare:', type=source, defval=close)

instrument01 = security(input(title='Source of the 1st Instrument:', defval='EURUSD', type=symbol), period, src)
instrument02 = security(input(title='Source of the 1st Instrument:', defval='GBPUSD', type=symbol), period, src)
instrument03 = security(input(title='Source of the 1st Instrument:', defval='EURGBP', type=symbol), period, src)

_A = instrument03 * instrument02
_B = (1/instrument03) * instrument01
_C = instrument01 * (1/instrument02)

TriArb = _A-(_C*_B)

plot(title='Arbitrage', series=TriArb, style=columns, color=black, transp=75, trackprice=true)
plot(title='Real Change', series=offset(src[1]-src,1), style=histogram, color=black, trackprice=false, offset=-1)
hline(0, color=black)```
update: triangular for all the majors, let me know if something is wrong :P :
Awesome idea Ricardo!!

I think the key here is that usually you are getting a quote on lets say EURUSD at 1.00 and then USDGBP at lets say 1.25. So when you multiple EUR/USD and USD/GBP they should cancel and leave you with EUR/GBP at a price of 1*1.25. AT this point, if the dealer is quoting you say 1.2, you have an arbitrage opportunity whereby you sell whats expensive (the pairs) and buy whats cheap (the dealer quote).

So when you say you messed it up, I think the only mess up is that you need to check to see if theres an arbitrage opp first. You can use (going from memory here) covered parity formula to do this.

(this article explains the whole concept I think the formula is at the bottom)
http://financialexamhelp123.com/covered-interest-rate-parity-irp-pricing-currency-forwards/
SPYderCrusher
thx for the link i found something similar here, but i dont think its what im looking for.
RicardoSantos
this one probably is more accessible for both topics
http://thismatter.com/money/forex/fx-forwards.htm
How does this work?
I trade pairs all the time...and monitor the ratio chart for setups.
Makes for a very smooth equity curve, compared to single instrument trades.
IvanLabrie

but i messed this up, im going over it again.
RicardoSantos
My last posts have been pair trades. I'll check that out (I mostly go by the setups on each chart, and special focus on the ratio chart for decision making, using ADR and no stop).
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