Forex Spread Arbitrage

[ariestomaster]

The method you are about to see is very simple and straightforward. I will bet that you have never seen

anything quite like it. When I show this to people they always say "Why didn't I think of that?, This is so simple and it makes

so much sense..." And the fact is that it is very simple, very logical, and very powerful.

Most traders try and make things too complicated....

Okay, here we go:

We are only going to trade the GBP/USD and the EUR/USD. If you look at any chart you will see that these two pairs are

highly correlated. Notice I said "highly" not "perfectly" correlated. This distinction is critical, because if these pairs were

perfectly in sync there would be little opportunity for profit. What we are going to profit from is the "aberrations" between

these two pairs.

You are going to have to open two separate forex accounts to do this type of trading. In account #1 you will BUY the

GBP/USD and SELL the EUR/USD at the same time, creating a "spread." In account #2 you will SELL the GBP/USD and BUY the EUR/USD at the same time, creating another spread. As you can see, you are taking the exact opposite positions in each account.

Obviously when you first open the trades, one spread will show a profit, and one will show a loss. This is the key to

my approach to trading forex - As prices move up, down and sideways, one of the spreads will be negative and the other

positive. You close the positive spread at a certain time (discussed below) and leave the negative spread alone (it is just a

temporary paper loss) until IT becomes positive.

Here is the true power of my FX Spread method - you NEVER use stops...EVER. NEVER use limits...EVER. You don't care which way prices are moving BECAUSE IT DOES NOT MATTER!!!...All that matter is that prices move some direction...and they always do.

Anyone that tells you that they know where prices are headed is lying...they may get lucky for a little while,

but in the long run they will give all of their profits back...this is as sure as tomorrows sunrise. The "Crystal Ball" does not

exist...if it did we would all be rich overnight.

Here is the specifics, step by step:

Step 1 Open two separate accounts, preferably at different firms (you don't really want them to figure out exactly what

you are doing, as they will see how consistently profitable you are, and begin copying you).

Step 2 Deposit a minimum of $500 USD in each account. You need this amount to make sure you can ride out your "paper

losses" until they become profitable. Using mini-lots you will need a total of $200 to initiate the spread in each account

($100 per lot) and keep $300 as cash reserve, per spread, to allow for temporary paper losses.

Step 3 As stated above, in Account #1 BUY the GBP/USD and SELL the EUR/USD, at the market. In Account #2 SELL the

GBP/USD and BUY the EUR/USD, at the market. You now have created two spreads, one the exact opposite of the other.

You are playing all sides of the market at one time. Remember...NO STOPS and NO LIMIT ORDERS!!!

Step 4 Sit back and wait .... obviously one spread will begin to be profitable and one will show a loss. Relax....this is exactly

what you want. The spread showing the loss will not exceed the $300 you have in cash reserves, so just leave it alone.

Eventually the negative spread will turn around anyway and become profitable. Remember, it is only a PAPER LOSS right

now...it will only become a ACTUAL LOSS if you panic and close the spread before it turns around and becomes profitable.

Step 5 Know when to close your profitable spread. There are many ways to do this, and I have found the way that suits me

best after months of trial and error. The best way to describe my approach to taking profits is simple...I get up each morning before 10am Central Time and check both of my accounts. I close the spread that is making money, whatever the profit happens to be, and reopen the spread just as it was before. I check my "losing" spread, make notes , and LEAVE IT

ALONE....it is only a paper loss right now, and eventually will become profitable.

I have enough reserves to ride it out for as long as it takes, so I am not concerned at all. Your profits each day will vary, but using full-lots and capital of $5000, I have found it to average about $250 per trading day. So you will see an average of about 25 pips profit per trading day for every 2 spreads you take.

Now, you can enhance your returns by watching the trading action all night long when things get active and take advantage of the volatility. I did this for awhile but it burned me out. I made more money, but I was up all night (in the US) when the FX market is most active. At times I would take repeated profits off of BOTH spreads during an active session. In this case I would usually wait until one of my spreads had 15 pips or more profit, close it, then reopen it. Then my other spread would have 15 pips or more profit and I would close it...fun and profitable, but I was glued to the screen all night until sunrise and I just couldn't take it anymore.

[Dael]

Have just tested it a little on demo. A few days of fun testing. Well, one account went up with almost +100% return, another was taken out with margin call.

Have almost the same sum at finish line (was $5.000 + $5.000, now $9.550 + $50, -$400 loss on spreads). The main thought - there's no tendency to return negative account back to zero in spite of author's words. If it falls - it falls.

Resuming - system is dead.

[dhill0]

I have been trading spreads and have had some success. I am averaging about 300 to 400 pips a month with one account. I believe the key is knowing where to start your trade(s) and then once a profit has been achieved get out.

[VictorM]

I have only been trading FX for s few months, but it seems to me that you are "hedging". I know in the US hedging isn't possible without using two different accounts. With some of the markets touching new all Time highs, I'm not sure all the trades will be profitable before a margin call. Thanks for your input.