In order to check the validity of 1 by 1 lot of hedge, I created a spreadsheet to see what happens at the end of each day. I see from my numbers that the hedge does not hold. Check out the spreadsheet and see what I mean.
There is a missing ingredient and I think that is volatility.
If you put in the spreadsheet the following numbers:
J2=B5 or B4 (the EURUSD value 1.2746)
I2=C5/100 or C4/100 (the USDJPY/100 value 1.0606)
then you get the results you want. In fact after each day the value shift a little bid, because the relations between EUR, USd and JPY change a little bit.
With these pip-values you can determine the number of lots you have to put in each currencypair. With a demo at OANDA, you can do that calculation and test the hedge for some days.
An little explanation:
Suppose the EURUSD is 1.2500, USDJPY is 120.00 and EURJPY is 150.00. Now suppose the EURUSD stays the same for a day. Then we know that for each EURJPY-pip the USDJPY-pip has to move 1.25 pips the other way to keep everything constant. Just because the EUR is 1.25*USD. With the same way of reasoning you can see that a EURUSD-pip has to be 1.20 times the EURJPY-pip.
I don't know if I ruined your idea. I haven't done the calculation with the new values. As I wrote earlier, it is a good idea, but in my opinion too good to be true. I doubt if the poeple from IBFX give away so much money for free. However by buying/selling the currencypairs at different brokers (some who swap, others who don't swap), it could be done. If that's possible, please inform me, because I like free money
Thank you for your post. However, I don't understand why you want to change the pip values in dollar for each pair. That is what the broker uses, so we should use it to for calculating profit and loss for each pip move.
There is no free money. However, with proper hedging we can reduce the risk and that is all I am trying to find out... risk control is name of the game
If you are buying some currency pair, then - you are buying the first currency in the pair and selling the second currency in the pair. If you are selling some currency pair, then - you are selling the first currency in the pair and buying the second currency in the pair.
For example if you are buying 100'000 GBPCHF then you are buying 100'000 GBP and selling 244'360 CHF. Why 244'360 CHF? Because the GBPCHF rate is 2.4436.
Now about proposed hedge:
long GBPCHF and short GBPUSD and USDCHF.
We need to sell 100'000 GBPUSD. This will mean that we have sold 100'000 GBP and bought 195'850 USD.
We need to sell 195'850 USDCHF. This will mean that we have sold 195'850 USD and bought 224'350 CHF.
We need to buy 100'000 GBPCHF. This will mean that we have bought 100'000 GBP and sold 244'350 CHF.
Now we have absolute hedge, because all currencies we have sold and bought in equal amounts.
Now about swaps.
short 100'000 GBPUSD or 1 lot. Short swap -1.15 USD. The result -1.15 USD.
short 195'850 USDCHF or 1,95 lot. Short swap -10.4 USD. The result -20.28 USD.
long 100'000 GBPCHF or 1 lot. Long swap +16.65 USD. The result +16.65 USD.
The overall result: -1.15 -20.28 +16.65 = -4.78 USD!!!
Programmer Needed For EA
I have started an EA for this Hedge. I'm not a programmer so I can't really do much myself, but can someone please help out?
Currently I have calculations and showing values on the chart. We need someone to program the code to open and close trades.
To Do List
1. Calculate AutoRatio
2. Auto Open Trades when Volatility is below a given point ie -0.1
3. Close trades when account is in profit. Perhaps when volatility
is above +0.1. Maybe use $ value and include swap.
4. Add Magic number to calculations.
5. Add MoneyManager function to calculate risk and pip size
6. Add Profit Target Function option
7. Check calculations in function SymbolPrice() to ensure it is correct
8. Option to enter different symbols and EA will calculate correct ratios
Reloaded MMP Multi-Hedge.mq4 with different currencies and correct volitility calculation.
What is your basic logic? when do you enter a trade, when do you exit?
Just updated mq4 file to correct an error. Changed currencies. Volitility calculation is now correct.
Added Symbols New Version 1.1
Added new currencies and preset file. GBP/JPY/CHF
Default settings are for EUR/USD/CHF symbols.
We still need someone to program open and close trades.
Volatility is now correct. hovering around 1.0000 +/-.