Spot Forex Spread/Hedge

[hermittrader01]

Hi

I understand that there is another thread on GBP/JPY hedge strategy.

I am wondering anyone here care to discuss more about spot forex spread/hedge strategies.

Currently, I am looking at 3 pairs, GBP/USD, EUR/USD and USD/CHF. This 3 pairs has a correlation of more than 0.9, which made it good for pairs trading.

However, it is important to take note in spot forex, 1 pip of USD/CHF is around USD8.00 while GBP/USD and EUR/USD is USD10.00.

The other factor to take into consideration is the swaps. Also, the movement (range) of GBP/USD is usually about 20-30% more than EUR/USD and USD/CHF.

Currently, I am looking at 1.0 USD/CHF to 0.6 GBP/USD, 1.0USD/CHF to 0.8 EUR/USD, and 1.0 EUR/USD to 0.7GBP/USD.

It would be glad to hear from forumers who have done it and still doing it. Also, discussion is most welcome.

By the way, any other forums made to discuss spread trading specifically beside moneytec.

Regards,
HT
HT BLOG

[hermittrader01]

I have attached a trade history, this is a demo account for discussion purpose.

[hermittrader01]

i have attached another updated demo statement and one open position demo.

all these trades were entered at random, there wasnt any set up used.

Regards,
HT
HT BLOG

[Trevman]

dunno about those but how about,

BUY GBP/JPY
SELL GBP/USD
SELL USD/JPY

or maybe

BUY GBP/JPY
BUY EUR/GBP
SELL EUR/CHF
SELL CHF/JPY

if you could get a pip to equal the same then it should work right? even if im right each pip will never equal the same due to conversion rates changing.

[hermittrader01]

Originally Posted by Trevman

dunno about those but how about,

BUY GBP/JPY
SELL GBP/USD
SELL USD/JPY

or maybe



if you could get a pip to equal the same then it should work right? even if im right each pip will never equal the same due to conversion rates changing.

hi trevman

thanks for the reply.

on the buy gbp/yen sell gbp/usd and sell usd/yen, i believe this is known as triangular arbitrage trade. have u managed to work out on a trade setup or entered at random? there is another thread on gbp/yen. but i guess the strategy is to long gbp/yen and short gbp/yen, to receive the swaps difference as profit with the underlying pairs being hedge. (the short gbp/yen swaps payable should be lower than the swaps receivable if not if it meaningless, most likely have to deal with 2 brokers)

as for the BUY GBP/JPY BUY EUR/GBP SELL EUR/CHF SELL CHF/JPY, abit tough for retail cause huge margin tie up for 4 pairs and i am not too sure what is the yield of the result? have you checked the correlationship of these pairs? i dun have them with me.

maybe you would like to discuss on the set up?

i do know about spread trading, but the trades i have entered in demo were all random, couple with spread set up might yield a better results, but i have done on that yet.

Regards,
HT
HT BLOG

[Trevman]

the thread i believe your reffering to is http://www.moneytec.com/forums/f33/h...y-weeks-20355/

my general line of thought on both of those plans was that eg, if the USD became stronger it would do so by as many pips as it would weaken, as in

SELL GBP/USD
SELL USD/JPY

selling both would mean you were long USD on the GBP/USD and short USD on the USD/JPY, with the idea that they would negate each other however that would leave you exposed to the other currency thus the 3 pairs. this in turn meant that there would be two SELLS and one BUY so some how i decided that wouldnt work thus made up the 4 way plan. both produce positive interest in the end and both plans could be used on one broker (thus no need to transfer funds). going by the 3 way plan i tried it for a while using 1 lot for each pair, but this resulted in a profit from pips rather than interest since the value of a pip is diff for each pair.

after all this, i still havent been able to work out how much to trade on each. i think the best for this will be O&A since they allow lots down to very tiny amounts.

--EDIT--
ive just tried the 3 way plan on 0&A buy buying 10,000 GBP/JPY and selling 10,000 GBP/USD then looking at the exposure tab shows me that i was exposed on the JPY and USD and by how many units I sold the USD/JPY by how many units i was exposed by but that did not fully cancel the JPY and i was left exposed.

the 4 way plan left me very slightly exposed on the GBP 0.9 lots, how ever left me a bit more exposed on the JPY (again)

since both are exposed on JPY i decided to ignore interest and pair up another 3 but NOT a JPY, i used LONG EUR/CHF, SHORT EUR/GBP, SHORT GBP/CHF. result, a 0.10 lot exposure on GBP a 6.37 lot exposure on CHF

one last try with LONG EUR/USD, SHORT EUR/AUD, SHORT AUD/USD. result 3.62 lot exposure on the USD.

i'm beginning to question if this is actually worth pursuing. how ever there is http://en.wikipedia.org/wiki/Triangle_arbitrage

i've just answered my own question, i found this on a website http://www.advmathappl.com/sample.csv however i tried this at the current prices and was left exposed on the JPY

[hermittrader01]

hi trevman

i can see where u coming from, it seem that you wanted to transfer all risk out of your position, correct me if i am wrong. this seem like arbitrage trading, profiting from the price difference. to have a risk free profit, the price quote must be at least 30 pips off, it will be diffcult to get such opporunity, though it might still exist, but the insititution usually take it.

about the 4 way trade, have u got any set up for ur entry? or it is just random?

Regards,
HT
HT BLOG

[Trevman]

its just random, if you can correctly offset all open positions against each other why would you need an entry point? i was reffering to arb trading in my last post at the end but it started off trying to offset all my positions against each other in order to profit from the interest.