The Arbitrage Journey #3
📉 Yesterday, Nvidia lost more than 6% in a single session.
When markets move fast, price differences become more common.
That brings us to today's question...
Why Don't Exchanges Agree?
In the previous post, we learned that Bitcoin's price doesn't come from above. It is created by buyers and sellers. But that leads to another question.
🤔 If every exchange has its own traders...Why are Bitcoin prices usually so similar?
At first glance, the market should look chaotic. One exchange at $100,000. Another at $101,000. A third at $98,500. But that's not what we usually see. Prices across major exchanges stay surprisingly close. Sometimes the difference is only a few dollars. Sometimes a few dozen.
Why?
📈 Imagine a bottle of water costs $1 in one store. Across the street, the exact same bottle costs $2. What happens next? People start buying where it's cheaper. Others notice the difference and try to profit from it. Soon, prices move back toward each other.
Something similar happens in financial markets.
Thousands of participants constantly monitor prices across different venues. Whenever a meaningful difference appears, market forces begin pushing prices back together. That's why large price gaps rarely last long. But there is one problem.
⚡ Sometimes the market can't react fast enough. Sometimes the gap survives longer than it should. Sometimes it becomes much larger than normal. And that's when things get interesting.
👀 In the next post, we'll explore why price differences don't disappear instantly.