Correctly constructing a DAX/FTSE spread

[AntelopeStew]

Quote from asap:

on top of this, you have to neutralize the currencies involved in order to keep the spread immune from FX influence, otherwise you are also involved in a FX spread transaction.

This is the aspect I am concerned about overlooking -- basically putting on a EUR/GBP trade. But unless there is a major move in the pair, I think the effect should be relatively minimal -- do you agree?

Using the formula I put up earlier, the spread does trend pretty nicely, even if the esignal spread tool is a bit crude. I would rather construct spreads using the bid and the ask, rather than the last price.

Thanks to everyone for their replies.

 

[minmike]

Depending on how involved you want to get, you could hedge out the currencies in teh fx market. That would give you another variable of legging risk. Almost make it a three legged spread.

Always have to worry about volatility too.