Futures Spread Trading

I'm still missing something. How does the synthetic postions com out any different.

From what I understand,

If you are short the Euro/pound "pair, you are short euro's and long pounds.


If you are short the euro/$ pair, you are short euros and long dollars.

If you are long the pound/$ pair you are long pounds and short dollars.


if you combine the last two pairs, the dollars cancel each other out and it seems like syntheticaly you have the same position.

I don't trade currencies, I'm just curious what I am missing there.

Thanks for any help
 
wow impressive initial move today with the CPI # ... Looking at the charts I noticed that the currencies are pretty volatile during our A.M. hours, while the foreign markets are still open.. What hours do you prefer to make your trades OptionCoach?

Quote from optioncoach:

I am trading the Pound/$ v. the Euro/$ spread so in that sense it is a spread trade. I am not talking about the Euro/Pound pair.
More...
 
Spreading pairs against each other is surprisingly a great trade. I'm surprised the market pays as well as it does...I would think the banks would have all kinds of automated program trading to close these inefficiencies, but there are a lot of us scalping FX pairs all day.
 
I would prefer to trade from 1:00 AM EST to 6:00 AM EST when the trends begin with the morning session in London/Europe but I cannot stay up through the night any more lol.

FOr now regular trading hours from 8:00 AM to about 2:00 PM work well because once NY wakes up and the currencies are trending, they tend to keep trading in the same direction.

I closed my long Pound/Short Euro spread today at .6436 from basis of 6417 and then watched it continue to .6457 lol. Oh well...

Spreads are less volatile so you give up some of the reward from being long or short a single pair outright but have smaller swings against you relatively. I could have made a killing simply going long the Pound if I had ESP and knew it would move over 200 pips. But to show the extreme if I shorted the Pound I would have woken up down about 150 pips. The spread, if I shorted it, was up only 80 pips or so for a smaller loss. This is the trade off with spreads, less volatility so less reward than outright fx but smoother moves.

Quote from cml2949:

wow impressive initial move today with the CPI # ... Looking at the charts I noticed that the currencies are pretty volatile during our A.M. hours, while the foreign markets are still open.. What hours do you prefer to make your trades OptionCoach?
More...
 
From what I understand the euro pound pair is a cross rate.. All currencies have to be derived by another to show its value. Therefore either your long the euro or short the euro in this case.. However when you spread 2 crosses euro/$ and pound/$ than like you said the $ crosses out and now you have a spread of euro vs pound in dollar sense.. so you either long or short the other..

Quote from minmike:

I'm still missing something. How does the synthetic postions com out any different.

From what I understand,

If you are short the Euro/pound "pair, you are short euro's and long pounds.


If you are short the euro/$ pair, you are short euros and long dollars.

If you are long the pound/$ pair you are long pounds and short dollars.


if you combine the last two pairs, the dollars cancel each other out and it seems like syntheticaly you have the same position.

I don't trade currencies, I'm just curious what I am missing there.

Thanks for any help
More...
 
Hey Optioncoach ever think about doing the swiss vs. euro??
Same movements as the pound vs. euro and less comis since its a 1:1 ratio..
 
Quote from optioncoach:

I am trading the Pound/$ v. the Euro/$ spread so in that sense it is a spread trade. I am not talking about the Euro/Pound pair.
More...

AFAIK Coach, its the same thing. The EUR/GBP cross rate IS taking a position in EUR/USD and GBP/USD. It is a spread trade as are all crossrates.

Behind the scenes, a crossrate will buy or sell EUR/USD and then do the appropriate opposite on GBP/USD, and thus make the crossrate a spread.

The ratios are automatically managed as the sale of one pair, gives the revenue to buy X amount of currency of the other pair.

Kind regards,
MK
 
Just to make sure these are futures we are talking about.

I do not know the final answer but the spread I am doing moves differently from the Pound/Euro future. If it was the same thing I would think that I should have the same profit/loss doing the spread versus doing the BP/Euro future. Also the margin requirements should be the same. I will look into it but visually the spread has moved by greater or lesser pips than the BP/Euro futures.

If they are equivalent then arbitrage should make the moves equate somehow or one can enter the spread and buy or sell the BP/EURO future depending on the "mispricing"
 
well here is the rub, I am doing this in a prop shop and I have not had any haircut come up with the position so far so I do not know what the margin is a la retail. Also, I have been told that CME's recommended ratios are not always the best position so the margin should be better in a 2:1 than a 3:1.

I appreciate the questions and input to clarify these issues.
 
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