Question on Hedging - page 4

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kokas:
I think you should follow this two threads, you are doing much thing that is already done, just want to show you a shortcut, please do not take me wrong

http://www.forexforums.org/showthread.php?t=2548

http://www.forexforums.org/showthread.php?t=22

Thanks Kokas. I will check them out. I hope I can get this to work. So far what I have done is working but needs a lot of testing.

 
deeforex:
Barnix,

Thanks for the link. Are you Romanian? I tried entering the link into a language translator but it did not seem to recognize the language as being Romanian. If you aren't Romanian, I was wondering if you may be mistaken about the language of the forum.

dee

Hello everybody!

The forum on http://forex.vamist.com/forum is indeed in Romanian... You can ask for translations on the new english section

 

VERY High Interest Hedge buy NZDJPY buy AUDNZD

They pay the higest Interest amoung currency pairs hedge..but nearly not co-related at the time of volatility but we could manage it with small lots and building the pyramid.

For 0.10 lot long AUDNZD -0.32 0.10 lot long NZDJPY 0.83 =0.51

AUDNZD ~-1 % , NZDJPY 7 % = + 6 % Interest on the Hedge.

 

In my opinion the problem is that practically all participants of this thread are doing something different:

1) the starting idea of this thread belongs to Maji. how I understood he wants to have absolute hedge from 3 currency pairs and earn on swap points. But this idea is wrong, because there is no need to calculate volatility. you just need to buy and sell equal amount of the same currency. In the overall you will loose the money from such hedge. And I already showed the example in this thread.

2) barnix posted 1 indicator, 2 scripts and 1 expert. I looked through .. interesting, but it is arbitrage idea, but not hedging. Of course I do not understand the romanian, but I understand the MQL4.

3)sbwent .. seems that you are proposing to gain from carry trade. You are going long in some high yield currency pairs (GBPJPY, AUDJPY, NZDJPY, GBPCHF). And trying to hedge risk with some other pairs.

The starting idea of this thread is wrong. The others .. i don't know, need to try.

 

Based on barnix post, I created my own expert for arbitrage. Of course it is just begining so that i can understand is there any reason to continue work on it. I chose EURCHF and EURUSD, USDCHF.

Here will be the log from my expert:

11:37:02 Arbitraza 1 USDCHF,M1: From USDCHF graph. Ask main currency pair 0.9999

11:37:02 Arbitraza 1 USDCHF,M1: Buy EURCHF at 1.6135; Sell EURUSD at 1.297; Sell USDCHF at 1.2441

12:47:22 Arbitraza 1 EURCHF,M1: From EURCHF graph. Bid main currency pair 1.0004

12:47:22 Arbitraza 1 EURCHF,M1: Sell EURCHF at 1.6133; Buy EURUSD at 1.2978; Buy USDCHF at 1.2426

And the overall result:

At 11:37 we have bought 100'000 EURCHF at 1.6135, sold 100'000 EURUSD at 1.970, sold 130 000 USDCHF at 1.2441

At 12:47 we closed all positions. EURCHF at 1.6133, EURUSD at 1.2978, USDCHF at 1.2426.

In USD: From EURCHF -16 USD

From EURUSD -80 USD

From USDCHF aprox. +150 USD

Overall result: +54 USD

The result is great, but there are some aspects that bothers me. The main problem is that these discrepancies between main pair(in my example EURCHF) and synthetic pair(EURUSD, USDCHF) lasts just for few seconds. We need very smooth execution from broker so that we can profit from arbitrage. The second aspect ... i don't know what the broker will do if he will understands that we are making profits from such trading. I think slippages, requotes, spread increase .. is just beggining. There is need for very good broker or ECN style brokers. And one more thing .. without automatization .. the arbitrage just can not be done.

 

yes you are right. This is very dificult to do with MT4 brokers, thats why I abandoned the project.

 
nezinu:
In my opinion the problem is that practically all participants of this thread are doing something different:

1) the starting idea of this thread belongs to Maji. how I understood he wants to have absolute hedge from 3 currency pairs and earn on swap points. But this idea is wrong, because there is no need to calculate volatility. you just need to buy and sell equal amount of the same currency. In the overall you will loose the money from such hedge. And I already showed the example in this thread.

2) barnix posted 1 indicator, 2 scripts and 1 expert. I looked through .. interesting, but it is arbitrage idea, but not hedging. Of course I do not understand the romanian, but I understand the MQL4.

3)sbwent .. seems that you are proposing to gain from carry trade. You are going long in some high yield currency pairs (GBPJPY, AUDJPY, NZDJPY, GBPCHF). And trying to hedge risk with some other pairs.

The starting idea of this thread is wrong. The others .. i don't know, need to try.

Please read Post #3 of this thread. There is discussion about taking into account the volatility of the pairs.

Thanks for your input and please keep it coming.

 

Maji, sorry .. and please do not take offense, but in my opinion you are making mistake.

You wrote that "I am looking at volatility because I am trying to remain market neutral. ".

But you can be market neutral only if you have sold and bought equal amounts of all currencies.

You wanted to go:

short GBPUSD

short USDCHF

long GBPCHF

Lets look at some hypothetical example.

Rates:

GBPUSD 1.96

USDCHF 1.25

GBPCHF 2.44

Now you want to go short GBPUSD. For example you are selling 1 GBP to me and in return you are receiving 1.96 USD from me.

Short USDCHF. You are selling 1.96 USD to someone and in return you are receiving 2.44 CHF.

Long GBPCHF. You are buying 1 GBP from someone and in return you must sell 2.44 CHF.

Now look at the result. In overall you have:

Bought and sold 1 GBP.

Bought and sold 1.96 USD.

Bought and sold 2.44 CHF.

So now you have absolute hedge. No matter what will be the currency rates fluctuations .. you wil stay neutral!

But in this case in forex you will loose money, because of swaps.

 

Thanks for your reply. I like this discussion.

Let us assume we went long at the open of last week one lot of GBPJPY and EURGBP. We then shorted EURJPY. Then theoretically, we are market neutral and for the time being, let us forget swaps and also spreads.

The prices then and now are as follows:

EURJPY = 154.22 - 155.84 => loss of 162 pips = $1344.60 @ $8.30/pip

GBPJPY = 228.75 - 236.61 => gain of 786 pips = $6523.80 @ $8.30/pip

EURGBP = 0.6737 - 0.6583 => loss of 154 pips = $3024.56 @ $19/64/pip

Net gain = $2154.64.

Per day swap for,

EURJPY (short) = -$11.20

GBPJPY (Long) = $20.55

EURGBP (Long) = -$7.00

Net gain in swap = $2.35 per day.

Thus, you can see we will be on the positive (could well have been negative). Thus, it is not a perfect hedge. I think volatility is the missing link here.

Would like to hear more.

 

You always missing one point .. the trading amount. And you are not thinking like currency trader, but more like stock trader. Because in currency trading there are always 2 currency pairs involved.

Ok, lets look at you recent example.

long at the open of last week one lot of GBPJPY and EURGBP. We then shorted EURJPY.

Currency rates:

GBPJPY = 228.75

EURGBP = 0.6737

EURJPY = 154.22

1)So you have 10'000 long GBJPY. This means you have bought 10'000 GBP and sold 2'287'500 JPY. (This is what you are always mislooking, that you are not only buying 10'000 GBP, but in the same time you are selling 2'287'500 JPY).

2) You have 10'000 long EURGBP. This means you have bought 10'000 EUR and sold 6'737 GBP.

3)You have 10'000 short EURJPY. This means you have sold 10'000 EUR and bought 1'542'200 JPY.

In overall:

GBP

you have bought 10'000 from GBPJY

you have sold 6'737 GBP from EURGBP.

The result: you have bought 10'000 - 6'737 = 3'263 GBP

EUR

bought 10'000 from EURGBP.

sold 10'00 from EURJPY.

The result: 10'000 - 10'000 = 0 EUR. So in EUR you are market neutral.

JPY

bought 1'542'200 JPY from EURJPY.

sold 2'287'500 JPY from GBPJPY.

The result: 1'542'200 - 2'287'500 = -745'300 JPY.

So in overall:

You have bought 3'263 GBP and sold 745'300 JPY. This means that you are not market neutral. You have long GBPJPY! Because you have bought 3'263 GBP and sold 745'300 JPY. So you are doing carry trade.

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