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hedge forex positions with no loss
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togr

Biedrs kopš Feb 22, 2011  3684 ieraksti vontogr (togr) Oct 04 2016 at 07:28
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.

I like what I trade, I trade what I like
togr

Biedrs kopš Feb 22, 2011  3684 ieraksti vontogr (togr) Oct 04 2016 at 07:28
...sell 112 000 USD and buy third pair...
buy 112 000 USD...

I like what I trade, I trade what I like
5astelija

Biedrs kopš Oct 15, 2014  42 ieraksti 5astelija Oct 04 2016 at 07:29
@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

never ring the bell
bestdarngood

Biedrs kopš Nov 12, 2010  172 ieraksti bestdarngood Oct 04 2016 at 08:11
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
togr

Biedrs kopš Feb 22, 2011  3684 ieraksti vontogr (togr) Oct 04 2016 at 09:40
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).

I like what I trade, I trade what I like
bestdarngood

Biedrs kopš Nov 12, 2010  172 ieraksti bestdarngood Oct 05 2016 at 06:42
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
togr

Biedrs kopš Feb 22, 2011  3684 ieraksti vontogr (togr) Oct 05 2016 at 06:55
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.

I like what I trade, I trade what I like
5astelija

Biedrs kopš Oct 15, 2014  42 ieraksti 5astelija Oct 05 2016 at 13:29
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?

never ring the bell
bestdarngood

Biedrs kopš Nov 12, 2010  172 ieraksti bestdarngood Oct 06 2016 at 01:13
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.



See my profile or message me for my latest EA
CrazyTrader

Biedrs kopš Nov 21, 2011  1701 ieraksti CrazyTrader (CrazyTrader) Oct 06 2016 at 07:24
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.

You love my free signals... Like me on fb : )
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