Let's make a few things clear. You mention third (center) rail, which makes me think you are also using Maerklin, right?
It also appears you are using analog locomotives, right?
Do you want the system to be self controlled, or do you plan on starting the trains, setting their speed, turning turnouts etc?
Feedback modules on the layout I work on function like this:
There are three rails, two regular and the third in the middle which is not really a rail but just a series of pins on each tie/sleeper/crosstie, whatever you call those wooden blocks holding the rails together.
The phase of the current comes through this third rail, the ground is on the two outside rails. However, for the feedback to operate properly we sever the connection between the two ground rails effectively isolating one. Now ground comes from only one side. Also the feedback rail is not one continuous conductor, but separated strategically. For example each of many track blocks consist of three separate feedback stretches of track. One long on which the train runs at full (or otherwise determined) speed, one braking on which the train prepares for stopping and starts reducing the speed and the third one for stopping.
The wheels axles on the train are conductive, so when the ground is picked up on one track it is transfered to the feedback track on the other side. That ground is then detected by the feedback module (just a bunch of shift registers, actually) and sent to the computer for processing. When the computer receives the information that a particular feedback section is occupied it starts slowing down/stopping the train. It also prevents collisions by not allowing a train to start moving unless the route it intends to take is clear of other traffic.
The way I understood you was that you were thinking of putting an arduino on a train, and control each train that way without communication back to a stationary base. That is why I suggested putting the reed on the train and magnets on the track, so there is no need to send the signal back to the train.
If you want your system to know where each train is, and want to keep it as simple as possible I would go with IR LED on the train sending unique ID signal to the receivers alongside the track. When the train turns on a turnout it sends its identification and effectively location, since you can arrange the LEDs to receive only when the train is in a particular position and angle.