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'''Triangular arbitrage''' (also referred to as '''cross currency arbitrage''' or '''three-point arbitrage''') is the act of exploiting an [[arbitrage]] opportunity resulting from a pricing discrepancy among three different [[currency|currencies]] in the [[foreign exchange market]].<ref name="Carbaugh 2005">{{Cite book | title = International Economics, 10th Edition | author = Carbaugh, Robert J. | year = 2005 | publisher = Thomson South-Western | ___location = Mason, OH | isbn = 978-0-324-52724-7}}</ref><ref name="Pilbeam 2006">{{Cite book | title = International Finance, 3rd Edition | author = Pilbeam, Keith | year = 2006 | publisher = Palgrave Macmillan | ___location = New York, NY | isbn = 978-1-4039-4837-3}}</ref><ref name="Aiba et al. 2002">{{Cite journal | title = Triangular arbitrage as an interaction among foreign exchange rates | journal = Physica A: Statistical Mechanics and its Applications | volume = 310 | issue = 4 | year = 2002 | pages = 467–479 | author = Aiba, Yukihiro | author2 = Hatano, Naomichi | author3 = Takayasu, Hideki | author4 = Marumo, Kouhei | author5 = Shimizu, Tokiko | url = http://www.sciencedirect.com/science/article/pii/S0378437102007999 | accessdate = 2011-07-07 | doi=10.1016/S0378-4371(02)00799-9| arxiv = cond-mat/0202391 }}</ref> A triangular arbitrage strategy involves three trades, exchanging the initial currency for a second, the second currency for a third, and the third currency for the initial. During the second trade, the arbitrageur locks in a zero-risk profit from the discrepancy that exists when the market [[exchange rate|cross exchange rate]] is not aligned with the implicit cross exchange rate.<ref name="Madura 2007">{{Cite book | title = International Financial Management: Abridged 8th Edition | author = Madura, Jeff | year = 2007 | publisher = Thomson South-Western | ___location = Mason, OH | isbn = 0-324-36563-2}}</ref><ref name="Eun & Resnick 2011">{{Cite book | title = International Financial Management, 6th Edition | author = Eun, Cheol S. | author2 = Resnick, Bruce G. | year = 2011 | publisher = McGraw-Hill/Irwin | ___location = New York, NY | isbn = 978-0-07-803465-7}}</ref> A profitable trade is only possible if there exist market imperfections. Profitable triangular arbitrage is very rarely possible because when such opportunities arise, traders execute trades that take advantage of the imperfections and prices adjust up or down until the opportunity disappears.<ref name="Ozyasar 2013">{{Cite news | title = Strategy for FOREX Triangulation | author = Ozyasar, Hunkar | date = 2013 | publisher = The Nest | url = http://budgeting.thenest.com/strategy-forex-triangulation-21257.html | accessdate = 2014-06-15}}</ref>
==Cross exchange rate discrepancies==
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