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hedge forex positions with no loss

vontogr (togr)
Oct 06 2016 at 07:46
4862 Posts
bestdarngood posted:
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.




That is nonsense:
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.
If you buy 1 lot EURUSD you are buying 100 000 EUR and selling like 112 000 USD. Thats the point.

5astelija
Oct 06 2016 at 13:16
54 Posts
bestdarngood posted:
Then with GBPUSD, you would be Selling 100,000 Units of GBP and Buying 100,000 units of USD.


No, you dont get the same amount of different currencies. If eurusd rate is 2, you get 2 usd 'units' for every 1 euro 'unit' ='€'.
I wonder how you can make any strategy with such knowledge of the system.


vontogr (togr)
Oct 06 2016 at 13:23
4862 Posts
5astelija posted:
bestdarngood posted:
Then with GBPUSD, you would be Selling 100,000 Units of GBP and Buying 100,000 units of USD.


No, you dont get the same amount of different currencies. If eurusd rate is 2, you get 2 usd 'units' for every 1 euro 'unit' ='€'.
I wonder how you can make any strategy with such knowledge of the system.


exactly :)

bestdarngood
Oct 09 2016 at 12:32
174 Posts
5astelija posted:
bestdarngood posted:
Then with GBPUSD, you would be Selling 100,000 Units of GBP and Buying 100,000 units of USD.


No, you dont get the same amount of different currencies. If eurusd rate is 2, you get 2 usd 'units' for every 1 euro 'unit' ='€'.
I wonder how you can make any strategy with such knowledge of the system.



No, the value of the units doesn't matter, it is the number of units that matters.... You are still looking at it wrong. NUMBER OF UNITS and VALUE OF UNITS will not be equal. I agree with you on that. But the NUMBER OF UNITS matters for a hedging system more than the value of the units. If the prices all became 1:1:1, then both would equal out, but that is unlikely. But for having a safe hedge, you want to have an EQUAL NUMBER OF UNITS. Otherwise which ever currency that you have more UNITS of will be the commanding currency not the one that has the most value. What you fail to see is that 3 pairs of a hedge basket don't move equally in PIPs. For instance, for AUDUSD, EURUSD, and EURAUD, the EURAUD pair generally moves more PIPs than the other 2 pairs in the same time period.

What you are saying isn't necessarily wrong, but their are other factors that you haven't completely considered and don't see unless you actually map out prices. You can't just take one closing price, but you need to take multiple price points and see how each pair moves relative to the others over different time periods and you can see what I mean.

See my profile or message me for my latest EA
vontogr (togr)
Oct 09 2016 at 14:12
4862 Posts
bestdarngood posted:
5astelija posted:
bestdarngood posted:
Then with GBPUSD, you would be Selling 100,000 Units of GBP and Buying 100,000 units of USD.


No, you dont get the same amount of different currencies. If eurusd rate is 2, you get 2 usd 'units' for every 1 euro 'unit' ='€'.
I wonder how you can make any strategy with such knowledge of the system.



No, the value of the units doesn't matter, it is the number of units that matters.... You are still looking at it wrong. NUMBER OF UNITS and VALUE OF UNITS will not be equal. I agree with you on that. But the NUMBER OF UNITS matters for a hedging system more than the value of the units. If the prices all became 1:1:1, then both would equal out, but that is unlikely. But for having a safe hedge, you want to have an EQUAL NUMBER OF UNITS. Otherwise which ever currency that you have more UNITS of will be the commanding currency not the one that has the most value. What you fail to see is that 3 pairs of a hedge basket don't move equally in PIPs. For instance, for AUDUSD, EURUSD, and EURAUD, the EURAUD pair generally moves more PIPs than the other 2 pairs in the same time period.

What you are saying isn't necessarily wrong, but their are other factors that you haven't completely considered and don't see unless you actually map out prices. You can't just take one closing price, but you need to take multiple price points and see how each pair moves relative to the others over different time periods and you can see what I mean.

@5astelija
I believe you are wasting your time explaining this matter to @bestdarngood

5astelija
Oct 09 2016 at 16:52
54 Posts
bestdarngood posted:
For instance, for AUDUSD, EURUSD, and EURAUD, the EURAUD pair generally moves more PIPs than the other 2 pairs in the same time period.

Correct, but that doesn't mean you get more profit - the pips are just 'cheaper' in euraud. Currencies are relative, so you cant compare them with pips, use percents.
A 10% move in audusd would require x pips, while the same 10% move requires 2x pips in euraud - because the euraud price is roughly twice the audusd's.
= I still disagree with you, and I think you overcomplicate things to see something thats not actually there.
But I'll stop this nonsense now as @togr suggested :D

exnessdubai
Oct 10 2016 at 06:26
8 Posts
avoid trade in more pair,it will blow your account and you can't concentrate.

bestdarngood
Oct 11 2016 at 07:34
174 Posts
exnessdubai posted:
avoid trade in more pair,it will blow your account and you can't concentrate.


You don't understand basket hedge trading, it actually is much safer than trading just trading one pair...

See my profile or message me for my latest EA
exnessdubai
Oct 13 2016 at 11:29
8 Posts
forex is risk,but you can make 200% with my simple stratgy.why are you hedging with lot of position?? and complicated trade?

olivia_jones
Oct 13 2016 at 11:41
24 Posts
It is possible to create a hedge positions in different currency pairs but one has to match the notional amount of the buy side position with the sell side position. However, sometime hedging could be risky also when spread widens due to market volatility. Take the example of recent GBP flash crash, the spread widened a lot and I have seen many of fellows’ account getting burned due to that.

Janeo
Oct 13 2016 at 11:45
18 Posts
ilqarsadiqov200 posted:
Hello. Please excuse me for my newbie question. I want to hedge my forex positions (i.e buy or sell ) with other financial instruments with no loss to my capital. Is it possible anyway ? How i can do this if this possible ? Thanks.


If you want to hedge your position in currencies. One way to hedge is Triangular arbitrage in currencies only. But that would be like sailing in the same boat. So it would be better if you hedge your position by investing in Stocks and Indices to protect yourself.

exnessdubai
Oct 14 2016 at 06:28
8 Posts
hello,
it is not advisable in forex because you will not be safe in hedge positions during news time.you can do in stock with options hedge/future .in Indian market it is possible,but investment /return ratio is very bad,so i think you can find out some other stratagy.

bestdarngood
Oct 14 2016 at 09:30
174 Posts
exnessdubai posted:
hello,
it is not advisable in forex because you will not be safe in hedge positions during news time.you can do in stock with options hedge/future .in Indian market it is possible,but investment /return ratio is very bad,so i think you can find out some other stratagy.


You will be a lot safer in a hedge formation than in a normal 1 pair trade of the same pair that has a huge spread in Forex...

With hedging, it is true that you make small profits, but the upside is lower risk in the market.

See my profile or message me for my latest EA
vontogr (togr)
Oct 14 2016 at 10:21
4862 Posts
exnessdubai posted:
hello,
it is not advisable in forex because you will not be safe in hedge positions during news time.you can do in stock with options hedge/future .in Indian market it is possible,but investment /return ratio is very bad,so i think you can find out some other stratagy.

@exnessdubai
Hedge is great tool to protect your account. Especially during news when you can close both sides of position with profit

vontogr (togr)
Oct 24 2016 at 09:03
4862 Posts
CrazyTrader 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.


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.


@CrazyTrader
Dear ...,

I have an idea for you. As you did wipe all your real accounts you can do 2 things.
1. Give your advice as much as you can. It will be very valuable - just put the note to do exactly the opposite
2. Trade as usually but REVERSE all your trades, it does mean buy instead of sell and vice versa.

I believe with such approach you become a very successful trader worth to follow.

You are welcome. And no, I am not kidding you, I am serious, trying to help you recover the loss of all your accounts.

BR

Tomas

Anhänge:


LLewis
Oct 25 2016 at 06:33
35 Posts
Janeo posted:
ilqarsadiqov200 posted:
Hello. Please excuse me for my newbie question. I want to hedge my forex positions (i.e buy or sell ) with other financial instruments with no loss to my capital. Is it possible anyway ? How i can do this if this possible ? Thanks.


If you want to hedge your position in currencies. One way to hedge is Triangular arbitrage in currencies only. But that would be like sailing in the same boat. So it would be better if you hedge your position by investing in Stocks and Indices to protect yourself.


Completely agree! Invest in different markets to mitigate the risks. I like this approach.

Once a trader, always a trader!
bestdarngood
Nov 16 2016 at 18:20
174 Posts
@togr And everyone else (But mainly you since you said 'try it out')

If 3 pair triangular trading doesn't work, then explain this account -->

https://www.myfxbook.com/members/bestdarngood/fxcm-5000-d1/1822431


You guys are only ever thinking Instantaneous trading (Looking at a snapshot of the market at a specific point in time). What you fail to realize is that you need to look at a longer time period and realize that all pairs don't move equally and cancel each other out.

For example, take whatever the current price of 3 pairs such as AUDUSD, EURUSD, and EURAUD and notice how at the specific instance you look at, there is a relative bias towards one pair. Then think if all pairs were priced at parity 1:1:1, there would be no bias. Or look at a different point in time, I recommend pick a long time period to compare such as 1 year apart. Notice that there is a difference in the relative value and bias of the pairs. That difference in value/bias is how you can make money along with market inefficiencies. The pairs tend to gravitate towards each other so that if you were to trade a full circle, you would end up with what you started (minus fees of course). But if you trade when the market gets off a little, you can safely make profit like I show in the account I posted above.

There is the proof, just look at the history of the trades done.

See my profile or message me for my latest EA
Dove_Services
Nov 16 2016 at 22:05
33 Posts
Regardless of the reasoning it is a delusional strategy if the aim is to trade with no risk. There is always risk - just that you don't know what the outliers are given that the strategy is so convoluted. You are attempting to triangulate the inefficiency of volatility spread between supposedly correlated pairs. Just note the conditional 'if' in your statement.

Conceptually isn't it easier to trade just one pair (any pair) and trade the trend? If you can't make money trading one pair what is the logic that you can make money trying to trade multiple basket pairs in some form of convoluted way? If the whole strategy is dependent on market inefficiency, how do you determine when the market is in that state and able to trade it?

If your proof of concept is a trade account (which is a demo by the way), I can also show you martingale accounts that can perform for a period before it gets blown. You have to first get past the logic.

bestdarngood
Nov 17 2016 at 01:10
174 Posts
Dove_Services posted:
Regardless of the reasoning it is a delusional strategy if the aim is to trade with no risk. There is always risk - just that you don't know what the outliers are given that the strategy is so convoluted. You are attempting to triangulate the inefficiency of volatility spread between supposedly correlated pairs. Just note the conditional 'if' in your statement.

Conceptually isn't it easier to trade just one pair (any pair) and trade the trend? If you can't make money trading one pair what is the logic that you can make money trying to trade multiple basket pairs in some form of convoluted way? If the whole strategy is dependent on market inefficiency, how do you determine when the market is in that state and able to trade it?

If your proof of concept is a trade account (which is a demo by the way), I can also show you martingale accounts that can perform for a period before it gets blown. You have to first get past the logic.


This is actually running on multiple accounts, but I do not have permission to share the real accounts even though one of them has over 250,000 in it running this EA.

Also, regarding your other concern this strategy has been backtested using a custom made program to test the 3 pairs with both Bid and Ask tick data for all 3 pairs. So it is not proof of concept, I just have the demo account to share with others.

I would also like to point out that I did not state 'no risk', but rather less risk especially when a pair decides to spike or dip wildly.

I agree that conceptually it is easier to trade 1 pair, but this strategy limits the risk by protecting against big moves.

See my profile or message me for my latest EA
Dove_Services
Nov 17 2016 at 12:10
33 Posts
bestdarngood posted:
Dove_Services posted:
Regardless of the reasoning it is a delusional strategy if the aim is to trade with no risk. There is always risk - just that you don't know what the outliers are given that the strategy is so convoluted. You are attempting to triangulate the inefficiency of volatility spread between supposedly correlated pairs. Just note the conditional 'if' in your statement.

Conceptually isn't it easier to trade just one pair (any pair) and trade the trend? If you can't make money trading one pair what is the logic that you can make money trying to trade multiple basket pairs in some form of convoluted way? If the whole strategy is dependent on market inefficiency, how do you determine when the market is in that state and able to trade it?

If your proof of concept is a trade account (which is a demo by the way), I can also show you martingale accounts that can perform for a period before it gets blown. You have to first get past the logic.


This is actually running on multiple accounts, but I do not have permission to share the real accounts even though one of them has over 250,000 in it running this EA.

Also, regarding your other concern this strategy has been backtested using a custom made program to test the 3 pairs with both Bid and Ask tick data for all 3 pairs. So it is not proof of concept, I just have the demo account to share with others.

I would also like to point out that I did not state 'no risk', but rather less risk especially when a pair decides to spike or dip wildly.

I agree that conceptually it is easier to trade 1 pair, but this strategy limits the risk by protecting against big moves.

Thanks for your clarification.

I understand conceptually the nature of such a trade model where the risk modelling is using offsetting inverse relationship to limit the risk band. In risk modelling there are two primary risk i.e. risk (which is quantifiable) and uncertainty (not quantifiable). Whilst such a model might limit direct risk it invariably in my view increases uncertainty (thru more moving parts) and may by design potentially increases overall risk. The logic is that such a model assumes risk is limited to certain elastic band because of an established correlated relationship between the pairs. The problem comes in when there is a market event that dislocates the historical relationship such as what happened with LTCM. I assume the model does not use protective stop because that would be self defeating due to design requirements.

In the historical backtest, did it include any significant market event that may have temporarily dislocate such relationships e.g. when SNB removed its cap? We know that outcome caused some brokers to go broke due to inadequate risk control.

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