Hi, I'm new to trading. I am just wondering how a security has a universal price if different exchanges have different prices. Don't different exchanges have their own trades going on? So, they will have different last traded price/ price of the security, right?
How does a security have a universal price?
- Thread starter keyoti
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Arbs will keep the price differential on different exchanges to a minimum. If A2M is A$7.20 on the NZX, arbs will keep it around A$7.20 on the ASX. Otherwise its free money.
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expansion for keyoti:
"Arbs" is short for "arbitrage" (Google it)
If what you're asking about would happen, traders would simply go to the Exchange where the stock was cheapest, buy as many as they can, then sell them at the Exchange where they trade at a higher price.
In pre-computer times, this may have been possible to an extent; today, however, when even the most casual trader has real-time access to every Market they care to play on, it is near impossible to gain any significant and dependable advantage.
I'm not saying it's impossible. Especially when a stock is rather tightly held and trades are few and far between, bids and offers may differ across Exchanges, especially so if the Exchanges trade at different times, e.g. when a stock is listed in Australia and Europe. But your best plan can quickly turn to dust when there is a sudden change of exchange rates between AUD and EUR. That can have a far greater influence than the fact that the stock is dual-listed.
