Hedging GBP/JPY (Arbitrage trading system) - page 5

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mucho69
9
mucho69  

gbp/jpy has 200 pip or more move daily, lets say you have 10 lots, within 3 days a 500 pip move will cost you $50,000 , you wont even have enough time to make money to pay for the spread and you will already be stopped out

robp
565
robp  

Mucho,

So you're long gbpchf in a swap paying account, and short at another broker with a no swap account -- is that what you're doing?

mucho69:
not that simple, i have two accounts, $50K each, and $20k separatly to fund any one of the accounts that drops $20k, then i withdraw $20k from the one thats up, this way its much quicker, also i only hold 10 lots of gpb/chf that pays $18 a day for each lot, thats $180 a day multiply 360 days is $64,000 a year, so thats how i work it, gives me about 50% return, but i dont look at it as return its just good income for me.
Timothy
16
Timothy  
mucho69:
when one of the 50K accounts drops to 30K ill wire 20K into it, then the second account will have 70K and ill withdraw and keep the 20K on the sidelines, sometimes i do one transfer a month, sometimes three a month, my leverage is 100, and i have not had a margin call in 2 years, i have never closed my position since opening it , and i wont be promoting any interest free brokers.

Hi guys,

First post on this forum for me, but I have been trading the 100% Hedge system for a long time. And with many lots.

Firstly Mucho69, I am not attacking you here since I agree with your approach and strategy for the hedge. However I am intrigued how you managed not to close out your hedge - even once - during the last 2 years. By my reckoning GBP/CHF would have moved about ~2300 pips up over that period - give or take aa few hundred pips.

So 2300*8.6per pip*10 lots = ~$198,000 (this represents the profit on your buy side broker and the loss on your sell side broker). So from this simple calculation I am assuming you are leaving most of your profit in the system to cover this move over the two years, since your equity in the sell side account is only $50k you would have ended up sucking this dry - leaving you with no equity. So how did you manage not to rebalance your account - even once???????

All I can think of is you pulled the profits out of your buy side account and funneled them into your sellside broker - to make "fresh" equity??? So this is why I am assuming you keep your funds in the system?

Can you please clarifiy this, thanks.

Also do you run any "keep the Ifree broker happy" type trading strategy - i.e. do you do any other trading in your sell side account to keep the broker happy with you holding long term short Carry positions???

Finally have you had any indication from your broker (and I am not asking who your Ifree broker is), as to whether they will terminate your Ifree account if the pair you are trading crashes?? This is usually when the Ifree brokers bale on interest free accounts - since the risk of them loosing big time on all the short carry positions versus the available use of our capital is not worth the hassle or risk...

Mucho69, your comments would be appreciated on the above.

Tim

omelette
784
omelette  

Mucho69 did say that he rebalanced his accounts, sometimes up to 3 times a month:

https://www.mql5.com/en/forum/173340/page3

Timothy
16
Timothy  
omelette:
Mucho69 did say that he rebalanced his accounts, sometimes up to 3 times a month: https://www.mql5.com/en/forum/173340/page3

Yes Omelette - but you are missing my point. If the market moved as far as I have suggested then no matter how much transfering of the intial total $120K that he has deployed, will be enough to cover the total pip movement over this period.

Most brokers operate on basis that you can pull out up to as much money as you have in your starting equity, when you first take a trade. So if Mucho had $50k in his sell side broker account to start with, then the broker would allow him to take this much out of his sell side (Ifree broker) account. Even had the price action been favoring the sell side - this is as much as you can take out - the rest of the profit is locked in the open trade. (Even throwing in the extra $20K would not have come close to covering the 2300 pip movement we have seen from this pair over Mucho's trading period in this hedge)

So as the price moved up the only way to compensate for the shrinking equity position within the sell side broker is to take profits on the buy side broker to transfer them to the sell side broker. Hence my query about the fact that since the price has moved roughly 2300 pips over the period he stated he has been in his positions .... he MUST have done the above and so I ask the question...has he taken any profits out over the last 2 years???

Likely not. But that is not a criticism - since this is a perfectly acceptable plan of action - if he does not want to close out and does not need the funds. I just find sitting on it all with the broker for ~2 years would burn a hole in my pocket .

Please correct me otherwise Mucho.

Personally I treat my 100% Hedge trading setup as a business and like to take profits out each month.

Tim

omelette
784
omelette  
timmy:
Yes Omelette - but you are missing my point. If the market moved as far as I have suggested then no matter how much transfering of the intial total $120K that he has deployed, will be enough to cover the total pip movement over this period.

Most brokers operate on basis that you can pull out up to as much money as you have in your starting equity, when you first take a trade. So if Mucho had $50k in his sell side broker account to start with, then the broker would allow him to take this much out of his sell side (Ifree broker) account. Even had the price action been favoring the sell side - this is as much as you can take out - the rest of the profit is locked in the open trade. (Even throwing in the extra $20K would not have come close to covering the 2300 pip movement we have seen from this pair over Mucho's trading period in this hedge)

So as the price moved up the only way to compensate for the shrinking equity position within the sell side broker is to take profits on the buy side broker to transfer them to the sell side broker. Hence my query about the fact that since the price has moved roughly 2300 pips over the period he stated he has been in his positions .... he MUST have done the above and so I ask the question...has he taken any profits out over the last 2 years???

Likely not. But that is not a criticism - since this is a perfectly acceptable plan of action - if he does not want to close out and does not need the funds. I just find sitting on it all with the broker for ~2 years would burn a hole in my pocket .

Please correct me otherwise Mucho.

Personally I treat my 100% Hedge trading setup as a business and like to take profits out each month.

Tim

Hi. Yes, you are right, I did miss your point, I appreciate the clarification.

Would you mind answering a few of those questions you are putting to mucho69 yourself, namely, how, and how often, have you found it necessary to close and re-open positions, do you have to trade the account as well to "keep the broker happy", or do you just pay $5-per-lot-per-day (which seems to be 'standard')?

Also, have you ever tried trading correlated pairs in a similar manner, GBP/JPY, CHF/JPY for instance, closing and re-opening when their movement hit a certain dollar-profit? Some type of hedging the combo would obviously be needed once the d/d exceeded your 'pain threshold', but it seems a viable way of making money. Muddyguy's thread has some useful insights, as well as a few demo EA's available on this.

mucho69
9
mucho69  

you guys really are making this alot more complicated then it is, and i guess you dont really understand exactly how i do it, oh well...

Timothy
16
Timothy  
mucho69:
you guys really are making this alot more complicated then it is, and i guess you dont really understand exactly how i do it, oh well...

Omelette - I am in a rush - so will answer your post in more detail a little later.

Mucho - please don't get defensive - I was not critising your approach, I merely wanted to understand how you specifically did manage not to close out your hedge in 2 years!!! I would love to understand more..so please feel free to explain further.

As to making it more complicated than necessary - I can tell you from experience that I make it as simple as possible in my day to day running of my 100% Hedge system - BUT - I like to have a thorough understanding of the hows and whys. It is with an indepth understanding that I feel I am able to make it a simple process.... and with more than $250k in this system I need it to be simple to manage.

Tim

Timothy
16
Timothy  
omelette:
Hi. Yes, you are right, I did miss your point, I appreciate the clarification.

Would you mind answering a few of those questions you are putting to mucho69 yourself, namely, how, and how often, have you found it necessary to close and re-open positions, do you have to trade the account as well to "keep the broker happy", or do you just pay $5-per-lot-per-day (which seems to be 'standard')?

Also, have you ever tried trading correlated pairs in a similar manner, GBP/JPY, CHF/JPY for instance, closing and re-opening when their movement hit a certain dollar-profit? Some type of hedging the combo would obviously be needed once the d/d exceeded your 'pain threshold', but it seems a viable way of making money. Muddyguy's thread has some useful insights, as well as a few demo EA's available on this.

Omelette,

In answer to your questions:

The number of times you must close down your hedge and reopen is a function of your "pip buffer" that you run in each broker account. AND the volatility of the pair you are trading.

A simple way to decide on what would be an approapriate approximate buffer of pips is to take the ATR(1) and run it on the weekly chart (shrink the scale down so you can see 10 years of history) of your sellected pair. Move a horizontal line up and down to get a point where you are missing most of the spikes - so for the GBP/JPY that might be around 1100 pips. This then becomes your pip buffer and you can calculate the required margin and buffer funds you will need to trade each pair for EACH broker. You will also need a "bank buffer" just as Mucho runs - I normally look to make this about 40% of my broker Pip Buffer (just as Mucho does).

So with ~1100 pips buffer with the broker and ~400 pips equivalent captial in reserve I am able to fend off most big moves and sleep easy. I expect to have to shut down the hedge and reset about once per 2 months. But sometimes this can go much longer and sometimes much shorter - since the equity means that I can only withdraw the original amount on either side to place with the other broker if there is a big run on the G/J ..

But remember this still allows me to sustain an overall move in one direction of over 2500 pips. So I might make less returns (for me about 35%) but I also have less stress and lower risk. I look at it as a business so any business with no staff and no suppliers or pain in the ar*e clients - returning 35% p.a. gets a big tick from me.....

Sure, I trade my Ifree account but only about 3 times per week - I open and close a contract within a few minutes and take the loss or the gain as it happens - and since I do this in the quiet market times it usually only cost me the spread. So nice and SIMPLE - and I can budget this as one of my operating costs. There are some further simple tactics around this that I can discuss later.

I have not bothered with the correlation hedge to date although I am keen to follow this method up. Can you post the link to Muddyguys thread.

Cheers

Tim

omelette
784
omelette  

timmy, thanks, I appreciate the response.

The thread is found here: https://www.mql5.com/en/forum/general

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