I’m new to cryptocurrency and have gone through the entire documentation for Uniswap, but unfortunately still can’t seem to find an answer to this question.
I’ll describe my question in this hypothetical scenario. Say if I find a token at a cheap price, let’s call it Token A. I know Uniswap works on a token pair Liquidity Pool type protocol. But just for the sake of simplicity let’s express token A’s value in US dollars (instead of the other token in the pair). So let’s say token A is currently worth $1. So, can I simply just buy 100 tokens (of token A) at the price of $1? Or in other words - buy token A in quantities at $1?
If so, then that would raise the price of token A. Let’s say it goes up to the price of $10. I could then, in theory, sell the 100 tokens back at the new price of $10, making ten times the profit. Given that Uniswap protocol works on the AMM (Automatic Market Maker) concept, where you don’t need a counterparty to sell your tokens to, means that you can buy a token in quantities, which would raise its price, and then sell it at the higher price.
I’m sure that’s not how it works, as otherwise, anyone would’ve been able to game the system. And hence I’m asking here on the forum, hoping that someone would explain to me how Uniswap actually works to prevent this theoretical situation from happening?
The numbers in my example are not to be taken literally. The point I’m simply trying to make here is - how can Uniswap prevent people from buying tokens in quantities, raising the price of the token, and then simply selling the same quantities at the newly higher price? Thus keep repeating the scenario and making an infinite amount of profits!!
I know I can just create an account and join Uniswap, to play around and explore to try to find my answer, but as money is involved and I’m still new. I’d rather do some research and find my answers before starting to trade.
Many thanks in advance.