The important aspect of the cross currency triangulation is that most of the major currencies are not traded at the Forex trading platform against each other in the Interbank market and considered as the standard currency pairs.
From the day when EUR is accepted as one of the major currency in the Forex market the currency exchange market has been realigned and likewise certain changes in the currency pairs arrangements also took place and now currency pairs that are available for making trades includes EUR/JPY, GBP/JPY and EUR/GBP and many other currency pairs have been developed gradually in the market including commodity currencies as well.
The need of Forex arises because all the big companies and other nations wish to expand their business activities and trading at large scale and for transacting business outside one home country requires currency exchange and for that they require a platform that facilitates services to exchange the currencies in the desired currency in an easy manner with effective processes.
With the emergence of EUR as strong currency now traders, companies, exporters, importers, governments, investors and tourists all require a procedure to transact business in EUR as well along with the USD at the same time as allocating profits to send back to their home countries.
Before the acceptance of the triangulation method, UK company selling in Switzerland and fetching currency in Swiss Franc need to sell Swiss Franc for USD and then sell the USD for getting GBP.
Before the emergence of the cross currency triangulation processes currencies are sent back to the home country after getting repatriated with USD. This process is difficult and takes quite lengthy time to conduct but now with triangulation with the cross currency enable the traders to take advantages of bid and ask prices directly from the interbank market.
The investors and traders having enormous capital to invest and are well-experienced enough of forex trading can detect the discrepancies amid the bid and ask spreads through various cross currency pairs and is became possible with EUR, although such arbitrage trading possibilities lie for few seconds but those few seconds are enough for he traders to pull out the profits and today the online trading and connectivity is another plus point that provide them ability to get over the existed challenges of the Forex market.
There are numerous triangulation opportunities exist at the Forex trading platform that enables profiting from the exchange rate disparities and can be realized through various methods. For instance the trader places two buying position at the pair and one sell likewise places sell two pairs and buying one pair.
The triangulation opportunities available with the currencies like CHF, EUR, GBP, JPY and USD in order to convert EUR to home currency.
This can be a good trading strategy to hedge your investments against the risk of exchange rate interest parity.