Beating the spread

[fxtrader777]

Originally Posted by mmont

This trade becomes dependant of EUR and JPY thus EURJPY pair.

I repeat, the trade is EUR vs JPY. How each moves against the buck is not
necessarily
how they move against each other.
If you consider yourself the teacher then you should know it's not clear an egg is boiled unless you break it ( or spin it ).
So forget about International Finance and Triangular Arbitrage and do a quick look back at the price action thats under your nose. Do some " arithmetic " dont even need math, and you will see the light.

Why are this forum members so agresive.

Jezz, lighten up, it's a discussion.

Let me know how your research comes out.

well, well, and I repeat that if EURJPY does not depend on EURUSD and USDJPY move then there will be opportunity of risk free pips which is known as Triangular Arbitrage. I will provide you with an example and I think you will understand.
Bid prices: EURUSD = 1.2650 USDJPY = 117.50 EURJPY = 148.63. in this case EURJPY = EURUSD*USDJPY.
Now assume that EURUSD moves to 1.2610 and USDJPY to 117.60. With my approach EURJPY (bid price) should move to 1.2610*117.6 = 148.29.
Now let us discuss your approach. with your approach EURJPY does not depend on EURUSD and USDJPY moves, if it is so then let us consider that when EURUSD moves to 1.2610 and USDJPY to 117.6 EURJPY moves to 148.50. No we are doing following to get risk free profits. Let take that we do not trade forex on leverage account, we have cash and do following:

We buy 100 000 EURUSD at 1.2610, thus paying 126 100 USD, then with this 100 000 EUR we buy JPY and we get 14850000 with this 14850000 JPY we buy 126275.5 USD (USDJPY = 117.6). NOW DO YOU UNDERSTNAD HOW WE BOOKED 175.5 NET PROFITS WITHOUT TAKING RISK????? SO IF CROSS DOES NOT MOVES AS MOVES ITS COMPONENT THEN WE CAN MAKE RISK FREE PROFITS AND DOING SO ON A REGULAR BASIS AND WHEN EVERY TRADER DOES SO THEN TRIANGULAR ARBITRAGE DISAPPEARS. THIS IS EFFICIENCE OF THE FOREX MARKET. I REMEMBER IT HAPPENED ON RUR RATE IN RUSSIA.

[mishak]

Well, EURUSD, USDJPY and the cross EURJPY -they all depend on each other,or shud say "connected".
Sometimes big orders in EUR/JPY are filled thru major pairs (for best liquidity).

If EUR moves, then probably cross will move and vice versa.
If EURUSD goes up, somebody will wish to sell USDJPY and so on.

However, if you are open in EURJPY you may forget about EURUSD and stared just at the cross chart
If you are open in EURUSD, you may ignore EURJPY movements if you wish.

Triangular arbitrage is only in some "manuals". You waste your time looking for it.
You better try to catch arbitrage on EURUSD if you have accounts with two brokers.

[mmont]

The AUJPY spread was 10 pips, while spread for AUDUSD was 4 and for USDJPY 3, so if you had open position in AUDJPY you would have payed 10 pips as spread. But with another alternative you could do following:
1. Say we want to go long in AUDJPY
we are buying AUDUSD and USDJPY, this means we are long in AUDJPY. As AUDUSD nad USDJPY changes the AUDJPY changes with their proportion too so profit/loss is the same. BUT you pay 4 pips + 3 pips = 7 pip as spread vs 10 pips.

Let me remind you how this discussion started. ( see above )
Your idea was to save 3 pips on a A/J trade by spreading A/U and U/J.
Which you contend is the same as entering an A/J trade.
I gave you an actual quote that showed you would have been down 32 pips with such a trade at a particular moment.
No responce.
Your posted senario is full of assumptions and not backed by any actual price movement.
Plus you have the temerity to say " RISK FREE ".
FX 101 ...there is no free lunch and two crosses do not a cross rate make.
PERIOD...
I REMEMBER, IT HAPPENED ON.... ANY BAR CHART YOU CARE TO LOOK AT.
Follow your own advice and open your mind, man.

Still Friends.

[CrazyHorse]

AUD/JPY = AUD/USD*USD/JPY

The spreads have different values and this is a composite relationship
True spread should be 3*4 = 12 pips.

You are saving by getting 10 . . . I think?

Now
AUD/JPY = 88.50/88.55
AUD/USD = 0.7528/0.7532
USD/JPY = 117.54/117.57

Now 0.7532*117.57 = 88.553724 = 88.55
& 0.7528*117.54 = 88.484112 = 88.48
so there seems to be some live discrepancy . . . now how do you take advantage of this? . . . Perhaps the contextual question should be . . . if I need to short AUD/JPY should I take the short A/J rather than the short A/U + short U/J option?

Jezz . . .

[Kazuya Mishima]

There's no way to arb against the spread, if anyone hasn't noticed. It's all rigged, because most spreads are variable during volital events. Even during the day, an event could "tremor", say at a random time, such as 3:52pm. This isn't even near an on the hour new schedule, which i've seen happen quite abit.

I guess this kills arbs.

[ScottH]

the triangular arb would work. if the usd goes down on one pair, it will correct itself and go up on the other pair, the same as hedging. therefore the usd fluctuations will cancel eachother out, leaving only the eur and jpy and fluctuations to actually affect how much profit/loss you make, which will be directly correlated to eur/jpy

[tihomir]

Spread/costs is what makes math negative expectancy in trading, just like zero in roulette.

example:

goal: 10 pips
risk: 10 pips
spread: 3

you need 13 pips move for your goal and only 7 to stop.

however it is true that position trading with large stops makes advantage of broker smaller but you will need good leverage and big account to survive.

Risk less than 0.5% if you want to be winner.

tihomir,
http://bgforex.org