Suppose I were to buy Danish kroner using US dollars, at a rate 0f 6.51 DKr per US$. Ithen take my danish currency to the European central bank, and receive euros in exchange (at a slight premium). I then take my eros to a US bank, and exchange them back to dollars, making a slight profit (perhaps $0.006 per dollar. How long can I continue this before somebody wise up to me?
Can I buy currency contracts without much collateral? And, how much money do I need to be a currency trader?
I am certainly no expert in this field, but what you are proposing, to the best of my knowledge, is perfectly legal and nobody would bother you about it. I believe in commodities markets this is called arbitrage, where you take advantage of small differences in prices between two separate markets. Of course, the rates change constantly and you could get screwed if the rates change to your detriment in the middle of one of your round robins. And if it were that easy to do, lots of people very sophisticated about this stuff would do it, which would in itself close the profit gap by affecting exchange rates.
Looks like you would have to trade large amounts of dollars to make any money, though. Let’s say you want to make $100K. At the figures you quote you would have to roll over almost $17M.
CookingWithGas may be no expert, but’s right. This is triangular arbitrage. Arbitrage is the pursuit of riskless profit. Very, very large financial institutions engage in it (because they face low transactions costs). I guarantee that no triangular arbitrage opportunities exist for more than a few seconds in currency markets. The markets are large and consist of well-resourced, liquid and acquisitive agents. They leave no “money sitting on the table”.
Can you show me a real life example where that would work? Because with commissions and fees and expenses and deductions in the end you always come out losing. I have never seen anything else. The rates quoted right now at www.oanda.com are: 0.13464, 1.1501 and 6.4631. Multiply the three and you get 1.0008075707784. In other words, rounding error. Subtract commissions, fees, etc and you lost the money gained by the bank.
This would only work very exceptionally in real life if there was some imbalance. The immensa majority of the time you’d be losing money.
I was a currency speculator for years with direct lines to 5 different banks (3 different time zones each) and squawk boxes from currency brokers shouting prices 24 hours a day. In years of trading there was one possible arb opportunity and even that was because I could have jumped the gun on information I had about an amount of currency about to hit the market. There are people whose sole job is to arb and they have the infrastructure to do it which includes being located on a dealing room floor at a bank (and they still don’t make alot of money). You have to realize that the quotes you see on reuters are not dealing prices - you have to get a quote from the dealer and deal within seconds and even then they can pull the price. If your not lifting an offer in one ear and giving to a bid in the other then your not arbing, your speculating. There is absolutely no way that you could possibly arb.
Of course it can be done if you know the SECRET FLAW. I read it in an email and email never lies.
Padeye, it’s nice to see the spirit of Charles Ponzi is alive and well.