Currency arbitrage

Currency arbitrage: buying a currency where it is cheaper and simultaneously selling it where it is more expensive. The profit comes from the difference in rates, not from the currency rising or falling. It is a tool of banks, dealers and traders with access to several markets.

Types of arbitrage

• Spatial: the same currency is priced differently on two venues or by two counterparties.
• Temporal: betting on a change in the rate between buying and selling. Strictly speaking, this is already speculation with risk.
• Cross-rate (triangular): roubles are exchanged for yuan, yuan for dollars, and the result is compared with the direct rouble-to-dollar rate. If the chain is more favorable than the direct exchange, an arbitrage opportunity arises.

In liquid markets, such discrepancies close quickly. In markets with restrictions, they last longer.

What matters to an importer

An importer does not engage in arbitrage but runs into its cause: one currency does not have a single rate. The exchange-traded rate, the bank’s rate, the agent’s rate and the rates on different routes all differ. A dollar payment along one chain and via cross-conversion along another may cost different amounts.

Hence the practical conclusion: compare the total in roubles for the amount in foreign currency the supplier will receive, not individual lines. That total already includes both the FX markup and the fees.

What to watch for

• A rate without the date and time it was fixed means little.
• The benchmark for comparison is the interbank or exchange rate at the time of the quote.

Tell us your current rate, and we’ll look for a lower rate among the agents in our pool; if we can’t find one, we’ll say so: Compare your rate.