Are each of the currency trades at MtGox independent from the other? Who or what is the equalizing force that aligns the markets?

Question

MtGox supports many different currency formats. I'd like to know if each currency/BTC trade is independent of any other and the valuation isn't always perfectly aligned.

If someone wants Yen for BTC, but many other people want Dollars for BTC there is a supply / demand problem. One way to fix this is to automatically convert dollars for yen and absorb a currency conversion fee.

• Does MT Gox internally automatically equalize these market forces?

• Does a Bot perform these actions (at a rate of .60% per trade)

• What are the computations used to ensure the bot is profitable?

Answer 1

Mtgox uses a multi currency trading engine that matches trades between the different currency pairs. All trades are drawn from the one pool. Trades in one currency are matched against trades in another currency using ECB exchange rates, and tacking on a 2.5% fee. See Mtgox FAQ for further info: https://support.mtgox.com/entries/20800336-Multi-Currency-Trading

Answer 2

The force keeping the exchange rates of various currencies in balance is the same force keeping the exchange rates the same across multiple exchanges: Arbitrage.

When the value of Bitcoin is different enough that one could buy cheaply for one currency then sell for a profit in another, or in the same currency across multiple exchanges, people will do just that. This kind of transaction is referred to as arbitrage. The important part is that if there are enough arbitreurs their actions will eventually move the markets they are playing in, forcing them to meet in the middle and thus agreeing upon a price.