Why is trading behaviour so similar across all (mainstream) exchanges?

Question

I don't know much about stocks and investing, but lately I have been keeping a close eye on crypto exchanges and I noticed something I can't explain.

No matter what news is announced good or bad, or what ripple effect whales cause when they buy or sell, all exchanges behave nearly identically in real time. I would have expected at least some delays between exchange spot rates changes. Or perhaps geologically based differences, like Chinese people sleeping affecting exchanges based in China. Instead the trading graphs all move together.

What causes the exchanges to mirror each other so much?

Answer 1

You, as in the collective you that makes up the trading market.

Whenever the price differs enough between two exchanges, a trader who has an account (and funds) on both can profit by selling on the cheaper one, selling on the more expensive one, and then possibly transferring fiat/BTC to compensate. Of course, there are trading/withdrawal/transfer fees involved in all of these, but if the rates differ enough, it will at some point inevitably be worth it. This is called arbitrage.

Sophisticated traders likely keep funds specifically spread across exchanges to take advantage of this, and may have automated trading bots that trigger buy/sell orders whenever arbitrage opportunities arise.

The result of people exploiting arbitrage is that the price starts to balance out across exchanges.