Hello all,
I've been mulling over in my head what the requirements are for inter-exchange arbitrage to affect the price of a particular market.
For example, if you have two exchanges, with the same market structure, both accepting deposits and withdrawals in base and quote currencies, it seems arbitrage is clearly possible, should a pricing discrepancy present itself.
But what happens if the market structure is different between exchanges?
Say, exchange A has a 'standard' LTC/BTC market where you sell 1 BTC and get 0.1 LTC instantly, but exchange B, is a CFD exchange trading LTC/BTC where you go short 1 BTC and then have to close the trade at a later point?
Is arbitrage still possible?
Cheers, Paul.
At that point if you are closing a trade later than arbitrage becomes a much riskier game, in fact it's not too dissimilar to speculation at that point, the difference being you are speculating on the price going either one way or remaining the same, if it goes the opposite way you'll lose money and that's not really the idea behind arbitrage. The simple premise being you are guaranteeing a profit by trading both ways