Market Efficiency

The market reached almost perfect efficiency in one day of trading after the new options were added. In excel-speak, where A1 is your limit sell order, B1 is your limit buy order, and C1 is your USD investment:

=ROUNDDOWN(ROUNDDOWN($B$1*(C1-0.3))/$A$1-((ROUNDDOWN($B$1*(C1-0.3))/$A$1)*0.035);2)-C1

will give you the profitability of a single round trip of "C1" USD through the currency exchange. Due to the fixed cost of $0.30 cents to execute a buy, your returns increase logarithmically as your investment increases. Since there are different fees on the buying and selling side you can't boil down the equation to "a 12 point spread is break-even at this price point" because a 328/340 split has different fees than a 329/341 split. Having said that, a 328/340 split is break-even at the $1000 USD investment level, and the best open buy and sell orders are 327/341 right now. Another point move on each side and even investments large enough to corner the market aren't worthwhile anymore.

In summary, that 12-point hit you take for executing a market buy is paying the 3.35% + $0.30 fee to LL plus a miniscule (if any) profit to the trader.

well, it's not that simple, but yeah, it gets tight.

When you have time, could you enlighten me on what I missed? I didn't take in to account the beta factor of the exchange rate or any similar metrics because it wasn't meant to be trading advice, only a comparison of the market spread versus the fees associated with trading.

It would be humorous if someone with a few thousand USD posted huge open buy and sell limits at the 328/340 marks, and either cornered the market or forced day traders to operate at a loss.

Well, I tell you what, if the market does become efficient I will let you know because I'll stop making money from it and won't really care if you know.

Looks like it was just a temporary phase, as things are all crazy now and myself and Anna are making money again .