Speculation on rate differences between different exchanges

Lately there have been quite a bit selling/buying rate differences between different BTC exchanges. Now some of this can be explained by the fact that different exchanges operate based on different real world currencies and there is nothing to it, as the currency switches will diminish all or most differences between BTC rates.

However, since some of the exchanges base their operations on the same real world currency and yet still have noticeable difference between exchange rates, this opens up an interesting possibility for speculation. Note that I haven't done this on a big scale and do not recommend that anyone short on cash does any actual experimentation with this.

So here is a thought and the question. What prevents from X doing the following: first buy BTC from exchange A with real world currency M, then seconds after BTC has settled to X's wallet, he/she then proceeds to put BTCs on sale on echange B for the same real world currency BTC was bought with from exchange A; now assuming, for example, that exchange A's selling rate is N and B's buying rate is N+20USD, this sounds as real as any day trading.

Now what I wonder is that is this really exploitable in money-making sense or do the delays with transactions or some other mechanisms prevent anyone benefiting from different exchange rates on different exchanges?

speculation

Sami Laine

Posted 2013-11-17T11:48:14.577

Reputation: 131

Answers

I think that time prevents people from exploiting your schema. It takes from few days to may be a month to withdraw money from mtgox. Delay from transactions sounds negligible in comparison to this.

Salvador Dali

Posted 2013-11-17T11:48:14.577

Reputation: 3 050

+1. You can arbitrage like that if you have a TON of money or credit lines (a bank) and can wait for the withdrawal (as well as handle the risk of MtGox defaulting on it). But uniless someone willing to carry those risks steps in, arbitrage is just not going to work. Remember - if you do that you will have a TON of money coming out of MtGox and if that gets stuck for a month you need to pump more money into your buying side exchange. We easily start reaching double digit million amounts here in USD - possibly per day. – TomTom – 2013-11-17T18:32:30.053

This is called arbitrage. If it was easy everyone would do it and the differences would diminish. The reason the differences exist because on some exchanges you can't easily get money in or out.

Meni Rosenfeld

Posted 2013-11-17T11:48:14.577

Reputation: 18 542

"Arbitrage" has come to have several interpretations. Arbitrage was to notice a price movement on one exchange and then trade on a second exchange in anticipation of that movement. This doesn't require movement of funds between exchanges as many people in bitcoin circles now describe arbitrage.

Arbitrage with money movement tends to fail due to the time it takes to move money between exchanges. Many have tried it. The continuing prices differences between exchanges tells me that few have been successful.

user7636

Posted 2013-11-17T11:48:14.577

Reputation: 259