What are exchangeable investments?

Definition and Example of Exchangeable Investment

How Exchangeable Investment Works

What Does This Mean for Individual Investors

Definition and Example of Exchangeable Investment

Exchangeable investments are those that can be bought and sold on multiple exchanges. When combined with currency exchange rate fluctuations, they can provide opportunities for investors to achieve significant profits.

How Exchangeable Investment Works

In the simplest terms, exchangeable securities allow investors and speculators to buy at low prices and sell at high prices for a profit. This is done through a process known as “arbitrage.” Traders take advantage of the price difference in two different markets, buying at a lower price in one market and selling at a higher price in the other market.

What Does This Mean for Individual Investors

Suppose you find a stock that is trading on the American exchange, currently at an ask price of $10 and the USD/CAD exchange rate is 1.30.

If the best deal you can get is a USD/CAD price of 1.30, the stock is expected to trade at around $13 CAD on the Canadian exchange. ($10 US stock price multiplied by 1.30 equals $13 CAD.)

From second to second, there may be small discrepancies as the currency price changes and the stock experiences its own price changes due to buying and selling pressures. If a trader sees a significant arbitrage opportunity that is large enough to achieve a quick profit, they will step in. This drives the estimated lower-priced market up (by buying) and the higher-priced market down (by selling), bringing both markets back into balance.

Source: https://www.thebalancemoney.com/definition-of-the-trading-term-fungible-1031163