Forex/Currency Trading Question (see details)?

Question:

Is there ever a situation where (assume all exchange rates are hypothetical) you could trade $10 US for 5 Euros, then trade those 5 Euros for 1000 yen, then trade those 1000 yen for $20 US (all trades happening as quickly as possible, maybe within seconds), i.e. the exchange rates don't all agree at any given single moment in time. Some times I hear that the US dollar went up against the yen bet fell compared to the Euro, does this automatically mean that the Euro also went up compared to the Yen? Do exchange rates only take into account the two countries whose currencies are being compared, or do they also affect other countries indirectly? Thanks.

Answer:
Yes, this is possible. Arbitrage traders take advantage of these price inefficiencies, and they do not last very long. They offer a very low rate of return, unless you use considerable leverage. You might make a few pips, which is negligable for the costs of the trade and the amount of attention you have to give the markets in order to find these opportunities. There are firms with algorithms built that seek out and exploit these opportunities, using computer programs and advancted trading algorithms, and you are probably best off assuming that they will be better at it than you will, and leave this sort of thing alone.

Wow... good question.

The answer is yes and no. It's a free market. Currency pairs will react or not react to everything. Sometimes they'll do exactly as you expect... other times not.

If you're interested in FX spend 6 - 18 months reading and learning everything you can. Do not use one penny until you truly understand the market, charting and Money Management.

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Forex/Currency Trading Question (see details)?

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