Spot Forex Spread/Hedge
- Thread starter hermittrader
- Start date
Well here, let me throw a curve ball your way in this discussion. How would it work out if one added another leg to this mentioned trade? Long eur/usd + short gpb/usd which equals the that long synthetic (would that term even apply here?) eur/gbp. But what if were to also put in a short position on eur/gbp?? The values of all three positions or the synthetic position and the real position would have to be equal where one could see the pip values being equal.
Now Oanda lets one set the size of the trades where you can do this. I am not sure how this is done with say FXCM or the others. I use Oanda, but I'm not sure how many units on the short eur/gbp I would have to use.
Anyways, perhaps this is something I may try out, maybe there is something there, maybe not. I'd be curious to see how the interest rate effects would be. What do you all think of this? Anyone try this out yet? If so, what has been your experience? Is this even doable?
1) long eur/usd + short gbp/usd + short eur/gbp = zero exposure (assuming the sizes on each leg are equal in value of the base). Such a trade would not be throwing me a curve ball, but rather donating free spreads to your dealer and using up margin to get zero exposure to the market.
2) As far as interest in concerned, it would be theoreticaly neutral. However, because FX dealers skim a litle off of what is credited in interest, but let you pay the entire amount that is due in interest, you would have a small debt to pay (yet zero possibility to gain or lose on the market as you have zero exposure).
It realy would be a good idea to understand the mechanismes of FX pairs before trying to reinvent the wheel. FX pairs are just fractions and their crasses are just the result of multiplication or division of fractions. ... prety basic grade 8 math.
have u d/l the different.jpg file?
i have long eur/usd short gbp/usd and long long eur/gbp
all three position entered at the same time and off volatile trading sessioin timing.
but the result is not the same.
maybe you can explain why is it so?
pardon me, you have previously said that
long eur/usd + short gbp/usd = long eur/gbp
now you are saying they are not the base same size?
so the long eur/usd + short gbp/usd = long eur/gbp still valid?
or to make it more transparent
long 1unit eur/usd + short 1unit gbp/usd = long 1unit eur/gbp still valid?
your statement "they are not the base same size" seem to tell me that long 1unit eur/gbp is not equal to long 1unit eur/usd + short 1unit gbp/usd.
i should feel that readers following this thread could benefit from this too.
Good discussion.
i use a strategy that is only long EURUSD, only long USDJPY, and only short EURJPY. my goal isn't to "hedge" but to make money.
ParisJOM, good clarification on the true meaning of hedging in the FX world. It is useless to take an approach of hedging for profit, but using it as an aside or to remain net neutral across your account is a wise thing to do, which is what i am doing with this method.
of course the position sizing is also paramount, and while it's not always net neutral across the board, it's close enough.
to the OP: you should look at the strength of one pair versus its crosses to help your strategy. i.e., if the EURUSD is moving one way, what are its crosses doing? what is the relative strength of the USD in relation to other pairs? this should keep you busy for quite some time.
i use a strategy that is only long EURUSD, only long USDJPY, and only short EURJPY. my goal isn't to "hedge" but to make money.
ParisJOM, good clarification on the true meaning of hedging in the FX world. It is useless to take an approach of hedging for profit, but using it as an aside or to remain net neutral across your account is a wise thing to do, which is what i am doing with this method.
of course the position sizing is also paramount, and while it's not always net neutral across the board, it's close enough.
to the OP: you should look at the strength of one pair versus its crosses to help your strategy. i.e., if the EURUSD is moving one way, what are its crosses doing? what is the relative strength of the USD in relation to other pairs? this should keep you busy for quite some time.
no, sorry - mine isn't a long term by any means. i'm in/out 20-30 times a day at the day's end, so interest rarely matters unless they are held through the close and reopen.
i'm thinking of moving it to OANDA and writing to their API but i'm pretty sure i'd get killed on the interest since my directional trades aren't interest positive, except for long usdjpy.