How exactly money moves from one forex to another so prices are the same across exchanges?
How exactly money moves from one forex to another so prices are the same across exchanges?
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user4951 · External communityPost link
External question — Quantitative Finance Stack Exchange
Author: user4951
Original post: https://quant.stackexchange.com/questions/53291
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One bitcoin exchange isn't directly connected to another. So price in bitcoin can vary from one exchange to another. The price differences are not usually huge.
One bitcoin exchange is only weakly connected with another bitcoin exchange. If price in one exchange is higher than price at another, people can buy where price is cheaper, transfer bitcoin to another exchange and make money. This is possible because the nature of cryptocurrency is that you can transfer money around easily.
I couldn't imagine the same thing in forex exchange. Say price of USD is cheaper in roboforex than in forex.com, I wouldn't imagine people buying USD in robo forex, cashing it in a bank and wire or send the money to forex.com
So what actually happens in forex exchanges?
To summarize
I know how money moves around in bitcoin exchanges. The
user
moves the money. If the users
cannot easily move money around
then the
prices between exchanges will vary greatly
.
In one exchange, coinexchange, for example, there was a time where ETH is in short supply. It took 10 hours confirmation to send ETH to coinexchange. So for a while, the price of ETH in coinexchange is 10 persent higher. Those who happen to have ETH in coinexchange can make a fortune selling ETH there. And then send the bitcoin to other exchange. Of course, they have to wait 9 hours for another cycle to work.
How do dollars and euro moves around in foreign exchanges? Do all exchanges have reserve accounts in various currencies in some banks? What happen if too many people buy EUR in one exchange and too many buy USD in another. What will happen? Will the bank automatically swift money around?
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Bob Jansen · External communityPost link
External answer — Quantitative Finance Stack Exchange
Author: Bob Jansen
Original post: https://quant.stackexchange.com/a/53479
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Banks and arbitrageurs move money around with limited difficulty. That's one of their main functions. They move enormous volumes daily.
Furthermore, I believe that for retail markets, whenever there is an opportunity to earn relatively risk free money, people will try to take advantage of it. More so if what they are doing is completely legal. If it means if they have to jump through some hoops to set-up accounts in multiple places, they will find way.
To elaborate:
Banks are in the business of moving and holding money, their own and others. They have developed highly efficient and complex to do this which can clear a large number of transactions. I don't know how retail traders would move money around to perform arbitrage as I'm not sure the arbitrage is worthwhile on most platforms. I did hear stories of people setting up accounts in South Korea (maybe through friends and family) when BTC was trading at a premium there and performing arbitrage in such a way. Such a construction would work for any trade.
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Quoted from Forex.com.bd-Editorial External question — Quantitative Finance Stack Exchange Author: user4951 Source score (net votes, not local likes): -4 Original post: https://quant.stackexchange.com/questions/53291 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. One bitcoin exchange isn't directly connected to another. So price in bitcoin can vary from one exchange to another. The price differences are not usually huge. One bitcoin exchange is only weakly connected with another bitcoin exchange. If price in one exchange is higher than price at another, people can buy where price is cheaper, transfer bitcoin to another exchange and make money. This is possible because the nature of cryptocurrency is that you can transfer money around easily. I couldn't imagine the same thing in forex exchange. Say price of USD is cheaper in roboforex than in forex.com, I wouldn't imagine people buying USD in robo forex, cashing it in a bank and wire or send the money to forex.com So what actually happens in forex exchanges? To summarize I know how money moves around in bitcoin exchanges. The user moves the money. If the users cannot easily move money around then the prices between exchanges will vary greatly . In one exchange, coinexchange, for example, there was a time where ETH is in short supply. It took 10 hours confirmation to send ETH to coinexchange. So for a while, the price of ETH in coinexchange is 10 persent higher. Those who happen to have ETH in coinexchange can make a fortune selling ETH there. And then send the bitcoin to other exchange. Of course, they have to wait 9 hours for another cycle to work. How do dollars and euro moves around in foreign exchanges? Do all exchanges have reserve accounts in various currencies in some banks? What happen if too many people buy EUR in one exchange and too many buy USD in another. What will happen? Will the bank automatically swift money around?
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