Advanced question about Forex market?
December 19th, 2009
Eric F asked:
Hi,
Hi,
Im wondering whether the cross pair currency rates are determined by speculative traders or arbitrage trading computers. For example you have two liquid pairs:
EUR/USD
USD/CAD
and a cross rate
EUR/CAD
I figure, since most of the speculative trading is done on EUR/USD and USD/CAD, the EUR/CAD exchange rate is made by arbitrage traders adjusting the correct cross rate so there is no cross currency arbitrage. That means there are a lot less speculative trades on the EUR/CAD pair than on the EUR/USD for example, percentage wise that is, right? Given that, trading on the cross rate is alot harder, since the market psychology is made up of less traders and more arb, right?
SHEMANSKI