Why do different exchanges have significant price differences?

[wicketr]

For instance on BitStamp the exchange is currently set at $1,080. While on MtGox is at $1,190. It's seem like if you had an account on both, you could just sit there and "flip" coins all day making a huge profit. What am i missing? I'm really surprised that the exchanges aren't at least within 1% of one another and not a 10% difference as it is right now.

[bitmagi]

It is all based on supply and demand.  You can't compare it to trading traditional stocks.  In traditional stocks whether you are trading through E-Trade, TD, or XYZ the supply and demand is generated by the number of shares available for a specific corporation.   With bitcoin exchanges the supply and demand is driven by the people within the specific exchange for the most part.

[odolvlobo]

It is very difficult to transfer dollars/euros/yen/... between exchanges so the prices tend to drift apart.

For example, the price is high on Mt. Gox and low on BTC-e. A smart person would sell bitcoins on Mt. Gox and then use that money to buy them back on BTC-e. This is called arbitrage, and the price difference tends to be very low if enough people do it.

The problem is that takes a long time to transfer dollars from Mt. Gox to BTC-e. The price could change during that time and the person doing the arbitrage could lose money. Because arbitrage doesn't work well, the prices tend drift apart depending on other factors.

For the specific cases of Mt. Gox and BTC-e: it is hard to get dollars out of Mt. Gox, so the exchange rate is high. It is hard to get dollars into BTC-e, so the exchange rate it low.