Are financial markets "unique" for each "currency pair", or are they simply "translated"? This is something I've been long wondering about.
Let's say that I have statistics showing the daily closing Bitcoin price in USD since early 2009. Great. Now, if I wanted to get the daily closing Bitcoin price in SEK or EUR or whatever currency instead of USD, I could use historical exchange rate data to translate all the data points to SEK prices, or EUR prices...
Or could I?
This is based on the assumption that all the non-USD markets are simply &quot;translated&quot; from the USD price; that they are all interconnected. For example, if I buy X Bitcoin at some date using SEK or EUR, that is reflected in the USD Bitcoin price for that day, only translated into USD?
Or is each market (currency pair) &quot;unique&quot;? Maybe there are very, very few people trading Bitcoin in SEK, so the price could be completely different in SEK for one Bitcoin at any given date, differing completely from the USD Bitcoin price for that date?
I hope I've asked my question clearly. I'm trying to figure out if the data is simply &quot;translated&quot;, or if there are unique markets for each currency which are their own &quot;closed ecosystems&quot;.
It's not clear what level of answer you're looking for, so here is a much more basic answer.
There are indeed many exchanges with many different prices. However, if you have noticed that you could make money by exchanging your BTC for USD, exchanging the USD for SEK, and then exchanging the SEK for slightly more BTC than you started with - then someone else probably has noticed that too, and they'll make free money with the manoeuvre just as you will.
As people do this, the prices gradually equalise: you're making BTC more scarce relative to SEK so are driving its price up in SEK (making the last hop less profitable), and you're making BTC more common relative to USD so are driving its price down in USD (making the first hop less profitable).
So it is theoretically possible for such an opportunity for arbitrage to exist. In practice, however, in such a simple case, there are powerful forces acting constantly to equalise the price. As long as it's easy and low-fee to make all three transactions in the chain above (that is, as long as the respective markets are sufficiently liquid), people will make those transactions and the opportunity will naturally disappear.
If you identified a really unobvious opportunity for arbitrage (so unobvious that nobody else saw it before you) and the markets were liquid enough, then you could make a lot of money off it by exactly this manoeuvre!
In fact, very early on, the Bitcoin markets were absolutely full of arbitrage opportunities. The big players were not keen to trade in such risky places (it was routine for an exchange to just close down and run away with large amounts of other people's bitcoin - see the middle point on Forbes's article about this), so there was not such a strong force equalising the prices. As it's become more mainstream, though, more people started taking the free money, and the opportunities have dried up somewhat. So you may very well find that earlier in your dataset, the markets are much more obviously distinct.