Difference on long/short on forex currency pair trading and its inverse
Personal Finance & Money Asked on September 26, 2021
Assume there is following information on the pricing of the currency pair
Based on the image above, the spread for AUDUSD is lower than USDAUD (0.9 vs 1.6).
Assuming I wanted to buy USDAUD, does it make more sense to place a sell order on AUDUSD instead?
What’s the pros and cons in doing so?
One Answer
It's an illusion. Selling AUDUSD is the same as buying 1/USDAUD, and 1/0.78328 (the ask for USDAUD) is 1.26683 (the bid for AUDUSD). Same for the other pair - 1/0.78337 is 1.276536. So in that pair there is a difference of about .00003 (with some rounding error possible). THe magnitude of the spread is irrelevant.
Otherwise, you could buy one pair, sell the reciprocal, and have a risk-free profit, so arbitrageurs will trade these discrepancies until the arb difference goes away.
Correct answer by D Stanley on September 26, 2021
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