Binary Options Arbitrage Strategy with Forex Options Trading

Arbitrage is the practice of buying a financial instrument from one exchange and selling that same financial instrument on a different exchange for a higher price. Since you are trading the same financial instrument, there is no risk, a profit is made from the difference. It can also be done by selling the financial instrument from one exchange and buying it for a cheaper price on a different exchange. This was a common practice years ago on regulated exchanges that offered the same financial products. A trader might call their broker in Chicago and then call their broker in NY to try to execute the strategy. However, nowadays most financial instruments are traded uniformly on one exchange or market.

So why are we talking about this then? Great question. You see, different software packages or brokers offer the same underlying FX pair, however, they may offer different payouts. Because of this, arbitrage opportunities exist. In some cases, there are periods of time in which the price of an fx pair may lag on platform compared to another. In order to do this you would need to have more than the one fx broker/platform.

In addition, there are assets that are strongly correlated with each other. If you know one currency moves alongside another currency pair you might want to investigate it for a potential arbitrage opportunity. For example, GBP/JPY and USD/JPY have a strong correlation.

So there are two ways to explore this strategy:

1. The first is to look for the same currency pair on different Forex broker platforms.
2. The second is to look for currency pairs that move along with each other. If you do a simple search online for a correlation matrix you should be able to find which financial instruments are similar.

Pure arbitrage is in theory a ‘riskless trade’. However, correlation trading is not pure arbitrage, it is an assumption that an existing relationship amongst two currency pairs will continue to stay true in the future.

In conclusion, arbitrage when done correctly has minimal risk. True arbitrage opportunities are easy money when you can find them. Once you understand the concept, move on to correlation trading. Correlation trading is not riskless, however, it’s an effective binary options trading strategy.