Posted by Garth on Tuesday, November 4, 2008

Ok, this baffles me.  But I really want to understand it, especially since I'm sitting on CAD but not living in Canada.  So here's the deal...

As of today, according to Google Finance, the following is true:

1 CAD = 0.6640 EUR
1 CAD = 0.8470 USD
1 CAD = 1.2430 AUD
1 CAD = 29.6220 THB
1 USD = 0.7840 EUR
1 AUD = 0.6820 USD

So, if I spend 1 CAD I can buy 0.8470 USD.  If I then take that 0.8470 USD I can buy 0.6640 EUR.  So it's a wash.

BUT... if I spend 1 CAD I can buy 1.2430 AUD.  If I then take that 1.2430 AUD I can buy 0.8477 USD.  Or 0.6638 EUR.  Or 29.6257 THB.  So my question is... WTF?!?!

Can I somehow make money doing this?  I'm sure the answer is no cuz there's bound to be a middleman taking a cut somewhere, which will likely be more than the 0.07 cents USD profit I'd make... but is there a way, perhaps using other currencies or specific, low cost trading methods, where this would work out for me?  I'm sure there's some rounding going on with these numbers beyond the 4th decimal place, but still... it's very clearly an 0.07 cent USD discrepancy which only appears to exist (at least in the currencies I've chosen) between CAD and AUD.  So let me phrase this more simply and remove all those confusing numbers...

CAD to AUD to USD = Profit
CAD to AUD to THB = Profit
CAD to AUD to EUR = Loss

Since THB is what I'm working with right now, how can I use this to my advantage?  Is there a website I can visit that explains it?  Is there someone I can talk to (that won't charge me anything, or at least if I trade through them would only charge me flat commissions)?  Can someone shed some light on this?


Peter said...

There are a lot of factors that could account for the discrepancies, such as what markets are open or closed, how frequently Google get updates on a particular currency. For example, the AUD number you’re looking at are probably going to remain very static as the currency markets in Australia are closed for the night. There might be some after hours trading, but probably not a lot for Australia.

However, the numbers you’re looking at are in the hundredths of a cent range.

If you look at some examples, based on exchanges you provided....

CDN-AUD-US compared to CDN-US
1 CDN > 1.243 AUD > .847726 US
1 CDN > .8470 US

Yes, there is a minor difference, but let’s compare at $1,000,000 CDN$.
1,000,000 CDN > 1,243,000 AUD > 847,726 US
1,000,000 CDN > 847,000 US

Which only results on a $726 US difference on $1million CDN if you could get those exact exchange rates.

Garth said...

Wash, rinse, repeat. My point is that if there's a discrepancy at all then there will always be discrepancies, and it's just a matter of finding them. In other words, assuming the correct feeds and software (and a minimum "trading" fee) this should be a no brainer. I'm still gonna do a lot more research, but what it really comes down to is that when I came here 1 CAD = 34 THB. I want that which is rightfully mine.

Gregg said...

well your post mostly hit it on the head - yes there is a middleman. All banks not only charge different rates but also a "currency purchase fee". You need to look at the "sell at" and buy at" rates - today at the bank i am working at sell is almost 3 cents more than buy rate. The math you are doing is like figuring out a mortgage or a credit card payment based on prime lending rates - as in its never going to happen. The type of transaction you are talking about happens all the time, but unless you have a lot of cash you can't make money on it because of the small returns and you are better off in equities or bonds.

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