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hedge forex positions with no loss

SaltyWaters
Sep 29 2016 at 14:56
247 posts
@5astelija I agree it's not the perfect or typical hedge but the idea is to offset the loss by going with the flow. But even with the perfect or typical hedge you cannot eliminate the risk of loss because there's no such thing, it's only hypothetical - it may move with you or against you. Trying to maintain a zero delta in hedging is not that easy if possible at all (at least for a long time).
What to call it I don't know. Fancy martingale, maybe. But isn't 'Trading' a fancy word for betting too. How many times do the technical indicators and the fundamental news prove you wrong and hit your stop loss. Either way you name it, it's all good if you are profitable.

Cheers!
kennyhubbard (compuforexpamm)
Sep 29 2016 at 18:45
265 posts
@SaltyWaters ,

Just to be clear, I believe you are talking about some sort of grid strategy, and I don't have an issue with that......each to their own, but I would like to make the following observations. This requires some form of asymmetrical lot sizing. Assuming I am correct.....

1. This is not hedging per se.......you still have to take a direction in the market.

2. One of my points is that a strategy like this can be devolved into a single one sided trade......eg... 1 lot buy and 1.1 lot sell is the same as 0.1 lot sell, but without the commission and swap charges.

My comments were not really aimed at grid trading as a strategy, but rather at the futility of trying to protect your capital via a hedge once you are starring a loss in the face. A $100 drawdown is just that.....once it is there, you can open a hedge trade but you simply postpone the problem until a later stage......but you cannot eliminate the problem. You have to take a position again, which implies that you may as well close your losing trade and take your new position........same same as hedging but without commission and swap charges.
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SaltyWaters
Sep 29 2016 at 19:13
247 posts
compuforexpamm posted:
@SaltyWaters ,

Just to be clear, I believe you are talking about some sort of grid strategy, and I don't have an issue with that......each to their own, but I would like to make the following observations. This requires some form of asymmetrical lot sizing. Assuming I am correct.....

1. This is not hedging per se.......you still have to take a direction in the market.

2. One of my points is that a strategy like this can be devolved into a single one sided trade......eg... 1 lot buy and 1.1 lot sell is the same as 0.1 lot sell, but without the commission and swap charges.

My comments were not really aimed at grid trading as a strategy, but rather at the futility of trying to protect your capital via a hedge once you are starring a loss in the face. A $100 drawdown is just that.....once it is there, you can open a hedge trade but you simply postpone the problem until a later stage......but you cannot eliminate the problem. You have to take a position again, which implies that you may as well close your losing trade and take your new position........same same as hedging but without commission and swap charges.

Gotcha! Same thing, different approach. 😄
5astelija
Sep 30 2016 at 07:36
54 posts
@SaltyWaters Wise words, seems we have very similar understanding of forex :)
bestdarngood
Oct 02 2016 at 11:09
174 posts
There is possibility for hedging 3 pairs and making a profit with the same size of lots for each pair. See my attachment for this with using one of my EAs. Very possible to make money in this way. Very painful to backtest, but worth it in the end as it provides a low risk way to trade Forex.

Attachments:

See my profile or message me for my latest EA
5astelija
Oct 03 2016 at 08:17
54 posts
bestdarngood posted:
There is possibility for hedging 3 pairs and making a profit with the same size of lots for each pair.
I don't see the way how moving money in a circle would bring extra profits (even without considering commissions).
The ea may work on backtest due to some glitch - you don't seem to have real trading results...
vontogr (togr)
Oct 03 2016 at 08:24
4862 posts
bestdarngood posted:
There is possibility for hedging 3 pairs and making a profit with the same size of lots for each pair. See my attachment for this with using one of my EAs. Very possible to make money in this way. Very painful to backtest, but worth it in the end as it provides a low risk way to trade Forex.

If you use the same lot size for all pairs it will not be precise hedge.
You need to calculate lot size based on rates.
bestdarngood
Oct 03 2016 at 11:50
174 posts
togr posted:
bestdarngood posted:
There is possibility for hedging 3 pairs and making a profit with the same size of lots for each pair. See my attachment for this with using one of my EAs. Very possible to make money in this way. Very painful to backtest, but worth it in the end as it provides a low risk way to trade Forex.

If you use the same lot size for all pairs it will not be precise hedge.
You need to calculate lot size based on rates.

You are wrong, same lot size is correct, different lot size then skews your position in the direction of whichever pair has the most lots.
See my profile or message me for my latest EA
bestdarngood
Oct 04 2016 at 07:28
174 posts
5astelija posted:
bestdarngood posted:
There is possibility for hedging 3 pairs and making a profit with the same size of lots for each pair.
I don't see the way how moving money in a circle would bring extra profits (even without considering commissions).
The ea may work on backtest due to some glitch - you don't seem to have real trading results...

Here is a better image of some of the latest trades made.

Attachments:

See my profile or message me for my latest EA
bestdarngood
Oct 04 2016 at 07:28
174 posts
5astelija posted:
bestdarngood posted:
There is possibility for hedging 3 pairs and making a profit with the same size of lots for each pair.
I don't see the way how moving money in a circle would bring extra profits (even without considering commissions).
The ea may work on backtest due to some glitch - you don't seem to have real trading results...

Also you can't test this in the Strategy Tester for MQL4 because it requires trading 3 pairs at once and that tester only tests one at a time.
See my profile or message me for my latest EA
vontogr (togr)
Oct 04 2016 at 07:28
4862 posts
bestdarngood posted:
togr posted:
bestdarngood posted:
There is possibility for hedging 3 pairs and making a profit with the same size of lots for each pair. See my attachment for this with using one of my EAs. Very possible to make money in this way. Very painful to backtest, but worth it in the end as it provides a low risk way to trade Forex.

If you use the same lot size for all pairs it will not be precise hedge.
You need to calculate lot size based on rates.

You are wrong, same lot size is correct, different lot size then skews your position in the direction of whichever pair has the most lots.

You are mistaken. You have to realize we are talking about THREE pairs triangle hedge.

Imagine that you buy 1 lot EURUSD
So you buy 100,000 EUR
AND you sell 112 00 USD (update based on rate)

Now to hedge it you need to sell 112 000 USD and buy third pair (yen for example).
So no you dont buy/sell the same trade sizes.
vontogr (togr)
Oct 04 2016 at 07:28
4862 posts
...sell 112 000 USD and buy third pair...
buy 112 000 USD...
5astelija
Oct 04 2016 at 07:29
54 posts
@bestdarngood Yeah, so you basically buy the 2 extra pairs and then immediately close them, resulting you end up with the 1 pair and extra commissions :D
bestdarngood
Oct 04 2016 at 08:11
174 posts
True that it cost you different amounts of USD for each of the 3 pairs, but it is all relative. Hard to convince someone until they try it out... If you don't trade equal lots, you will see that the pair that you have the biggest trade in will Overwhelm the other pairs.

You also need to take in account that all 3 pairs will not move the same number of pips over the same period. In the case of AUDUSD, EURUSD, and EURAUD, you will find that EURAUD generally will move MANY more pips than the other pairs.
See my profile or message me for my latest EA
vontogr (togr)
Oct 04 2016 at 09:40
4862 posts
bestdarngood posted:
True that it cost you different amounts of USD for each of the 3 pairs, but it is all relative. Hard to convince someone until they try it out... If you don't trade equal lots, you will see that the pair that you have the biggest trade in will Overwhelm the other pairs.

You also need to take in account that all 3 pairs will not move the same number of pips over the same period. In the case of AUDUSD, EURUSD, and EURAUD, you will find that EURAUD generally will move MANY more pips than the other pairs.

My friend,

I did try it on real account. I know how does it work.
You dont understand the logic in it.
So once more.
3 pairs hedge is working this way
You buy x lot EURUSD (Which means you buy x lot EUR and sell x*rate=y lot USD)
You sell z lot GBPUSD (Which means you sell z lot GBP and buy y lot USD)
You sell x lot EURGBP (Which means you sell x lot EUR and buy z lot GBP)

I hope I did not make mistake :)

At the end you
buy x lot EUR and sell x lot EUR = perfect hedge
sell z lot GBP and buy z lot GBP = perfect hedge
sell y lot USD and buy y lot USD = perfect hedge

Is it clear now?

This CANNOT work with the same lot size, unless all rates (EURUSD, GBPUSD, EURGBP are 1.00000).
bestdarngood
Oct 05 2016 at 06:42
174 posts
togr posted:
bestdarngood posted:
True that it cost you different amounts of USD for each of the 3 pairs, but it is all relative. Hard to convince someone until they try it out... If you don't trade equal lots, you will see that the pair that you have the biggest trade in will Overwhelm the other pairs.

You also need to take in account that all 3 pairs will not move the same number of pips over the same period. In the case of AUDUSD, EURUSD, and EURAUD, you will find that EURAUD generally will move MANY more pips than the other pairs.

My friend,

I did try it on real account. I know how does it work.
You dont understand the logic in it.
So once more.
3 pairs hedge is working this way
You buy x lot EURUSD (Which means you buy x lot EUR and sell x*rate=y lot USD)
You sell z lot GBPUSD (Which means you sell z lot GBP and buy y lot USD)
You sell x lot EURGBP (Which means you sell x lot EUR and buy z lot GBP)

I hope I did not make mistake :)

At the end you
buy x lot EUR and sell x lot EUR = perfect hedge
sell z lot GBP and buy z lot GBP = perfect hedge
sell y lot USD and buy y lot USD = perfect hedge

Is it clear now?

This CANNOT work with the same lot size, unless all rates (EURUSD, GBPUSD, EURGBP are 1.00000).

But again with unequal lot sizes, the pair that has the biggest trade will command the overall gain or loss of the trade, that is what you don't understand. You are correct in that the Exposure will be weighted towards one currency, but in order for the trade to work, you need to buy/sell equal position sizes, otherwise you should just buy the one currency that is weighted heavier and not open the other trades and then save the spread costs.
See my profile or message me for my latest EA
vontogr (togr)
Oct 05 2016 at 06:55
4862 posts
bestdarngood posted:
togr posted:
bestdarngood posted:
True that it cost you different amounts of USD for each of the 3 pairs, but it is all relative. Hard to convince someone until they try it out... If you don't trade equal lots, you will see that the pair that you have the biggest trade in will Overwhelm the other pairs.

You also need to take in account that all 3 pairs will not move the same number of pips over the same period. In the case of AUDUSD, EURUSD, and EURAUD, you will find that EURAUD generally will move MANY more pips than the other pairs.

My friend,

I did try it on real account. I know how does it work.
You dont understand the logic in it.
So once more.
3 pairs hedge is working this way
You buy x lot EURUSD (Which means you buy x lot EUR and sell x*rate=y lot USD)
You sell z lot GBPUSD (Which means you sell z lot GBP and buy y lot USD)
You sell x lot EURGBP (Which means you sell x lot EUR and buy z lot GBP)

I hope I did not make mistake :)

At the end you
buy x lot EUR and sell x lot EUR = perfect hedge
sell z lot GBP and buy z lot GBP = perfect hedge
sell y lot USD and buy y lot USD = perfect hedge

Is it clear now?

This CANNOT work with the same lot size, unless all rates (EURUSD, GBPUSD, EURGBP are 1.00000).

But again with unequal lot sizes, the pair that has the biggest trade will command the overall gain or loss of the trade, that is what you don't understand. You are correct in that the Exposure will be weighted towards one currency, but in order for the trade to work, you need to buy/sell equal position sizes, otherwise you should just buy the one currency that is weighted heavier and not open the other trades and then save the spread costs.

Nope. Whatever you say.
5astelija
Oct 05 2016 at 13:29
54 posts
Lets do more math: Buy EURUSD, sell GBPUSD, sell EURGBP 1.0 lot EACH.
Lets use the rates from previous week close:
EURUSD 1.12369
GBPUSD 1.29750
EURGBP 0.86572

From 1st trade we got +100 000€ and -112 369$

From 2nd trade we got -100 000£ and +129 750$

From 3rd trade we got -100 000€ and +86 572£

Now we add the money piles together:
100 000€ - 100 000€ = 0€
129 750$ - 112 369$ = 17 381$
86 572£ - 100 000£ = -13 428 £

We have left some dollars and owe some punds, which is the same as simply shorting GBPUSD.
Why should we short it more complicated, with 3 pairs?
bestdarngood
Oct 06 2016 at 01:13
174 posts
5astelija posted:
Lets do more math: Buy EURUSD, sell GBPUSD, sell EURGBP 1.0 lot EACH.
Lets use the rates from previous week close:
EURUSD 1.12369
GBPUSD 1.29750
EURGBP 0.86572

From 1st trade we got +100 000€ and -112 369$

From 2nd trade we got -100 000£ and +129 750$

From 3rd trade we got -100 000€ and +86 572£

Now we add the money piles together:
100 000€ - 100 000€ = 0€
129 750$ - 112 369$ = 17 381$
86 572£ - 100 000£ = -13 428 £

We have left some dollars and owe some punds, which is the same as simply shorting GBPUSD.
Why should we short it more complicated, with 3 pairs?

That is relative cost of each pair, but you have to look at the Size of Each Trade and think of them as Units.

1 lot of EURUSD is 100,000 Units
1 lot of GPBUSD is 100,000 Units
1 lot of EURGBP is 100,000 Units.

The reason your numbers don't come out equal to 0 each is because of the spread (cost of purchasing/selling a currency).

In a perfect hedge, lets say you Buy EURUSD, Sell GBPUSD, and Sell EURGBP.
So if you Buy 1 lot = 100,000 Units of EURUSD, you are Buying 100,000 lots of EUR or selling 100,000 lots of USD.
Then with GBPUSD, you would be Selling 100,000 Units of GBP and Buying 100,000 units of USD.
Then with EURGBP, you would be Selling 100,000 Units of EUR and Buying 100,000 units of GBP.
Then the overall trade would be, 0 units of all 3 currencies. That is how you need to look at it.


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CrazyTraderfx (CrazyTrader)
Oct 06 2016 at 07:24
1718 posts
bestdarngood posted:
True that it cost you different amounts of USD for each of the 3 pairs, but it is all relative. Hard to convince someone until they try it out... If you don't trade equal lots, you will see that the pair that you have the biggest trade in will Overwhelm the other pairs.

You also need to take in account that all 3 pairs will not move the same number of pips over the same period. In the case of AUDUSD, EURUSD, and EURAUD, you will find that EURAUD generally will move MANY more pips than the other pairs.

It's called Relative Force.
A goes into 1 direction of 10 pips
B goes into the opposite direction of 10 pips
=> so AB distance is twice.
EurAud is so twice volatile.

Triangle hegde works only for
EurUsd - GbpUSd - EurGbp
AudUsd - NzdUsd - AudNzd

Eur Usd Jpy... doesn't work as sometimes both safe even currency Usd & Jpy can be totaly uncorrelated

About EurUsd & GbpUsd & EurGbp... Edge story. Pro hedger of Real accounts. At least try to provide an exemple that works !!
If Buy EurUsd and Sell GbpUsd SO YOU BUY EurGbp! fool

@togr
'Ps: I was wondering how come Fx could move 1 single pips since when you buy you have imediate counterpart that sell. So it's equal'
HAHAHAHAHAHAHHAAHAHAHHAH
So funny!
I will explain you 1 day.
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