you may be right, actually I don't mess with EUR that much CHF/JPY is my thingQuote from cornixforex:
No risk - no edge, that's an axiom besides some rare arb opportunities (though even there risk exists, just probability of a loss is extremely small).
I would say it's easier to simply trade the Euro baby outright.
Spreading Forex
- Thread starter oldtime
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Your choice, but macro picture of major pairs is much easier to read, which surely adds some edge to TA based trading. AUD/USD is basically world commodities trade, EUR/USD is the game called "which turd stinks worse - EU or USA (lately EU leads without questions)" etc.
And CHF/JPY... Hmm, would get me confused, what exactly moves this pair, LOL.
http://pragcap.com/debunking-ron-pauls-talking-points here is a very interesting link I picked up on the Ron Paul thread which explains the difference between EUR and USD, the videos are on you tube and they are also very interesting. The jist of it is USD is not constrained by anything other than inflation, while EUR doesn't have the fiat luxury of just turning on the printing press.Quote from cornixforex:
Your choice, but macro picture of major pairs is much easier to read, which surely adds some edge to TA based trading. AUD/USD is basically world commodities trade, EUR/USD is the game called "which turd stinks worse - EU or USA (lately EU leads without questions)" etc.
And CHF/JPY... Hmm, would get me confused, what exactly moves this pair, LOL.
Synthetic positions aren't any more stable. Payoffs are always exactly the same (if ever they aren't, arbitrage will instantly eliminate the inefficiency), other than the higher commissions. It's a bit hard to visualize in the case of Forex, but it should be clear if you imagined all of the currencies being priced in terms of some idealized hard, static currency.
My terminology may be off, but I assumed an actual Forex 'spread' (as opposed to merely a synthetic position) would be to long or short a single currency vs. a bunch of others. So if you think EUR is going down, but you're worried that other major currencies will follow it, you just short it vs. everything. As long as it falls vs. the average of the basket of currencies you are shorting it against, you make money. For maximum effect, you weight the basket based on observed past correlations. (Actually I think IB offers something like this.) Maybe that's the kind of 'stability' you were thinking about?
Either that, or you're just talking about exiting your exposure for one currency without affecting your bullish/bearish sentiment on the other. For example, adding EUR/JPY to a preexisting USD/EUR position, thus giving USD/JPY. This makes sense if your opinion of EUR changed (but your opinion of USD didn't.) However, I don't think it ever makes sense to place those trades simultaneously, unless your broker doesn't offer your desired currency pair.
yeah see, that was what I was actually trying to ask about. In a static world with static positions I can see your point. But what about an evolving world with evolving positions?
To be honest with you the initial results in the paper account have been less than stellar. CHF/JPY up .61% and paper about flat. (well somebody has to pay for all those spreads and commissions.)
loderunner, I've read your post through about 25 times. You're the only one who understands me. Will you be my lover?
yep, that just about nails it. Anything to avoid actual trading.
otherwise, I never had this luxury in ES so this is my first time to consider size.
Thanks for the thoughtful reply.
I'm not into it deep enough to ask an intelligent question, but the idea is to get long CHF and short JPY and spread the risk among all the pairs with size.
I suppose I could just do the same thing with CHF/JPY and keep getting stopped out until I was finally right.
yep, that just about nails it. Anything to avoid actual trading.
otherwise, I never had this luxury in ES so this is my first time to consider size.
Thanks for the thoughtful reply.
I'm not into it deep enough to ask an intelligent question, but the idea is to get long CHF and short JPY and spread the risk among all the pairs with size.
I suppose I could just do the same thing with CHF/JPY and keep getting stopped out until I was finally right.
Glad to help, though I'm still not sure which part you're talking about. Synthetic positions as a means to adjust ('partially close out') an already existing two-sided position, or currency baskets to better capture one-sided sentiments like "USD will go up" ?
If you're using a basket philosophy, you don't think in terms of pairs, you think in terms of a single currency as compared to the rest of the world. How you define 'the rest of the world' does matter, but it's something to define early on and keep fairly constant, not something you figure out just as you are about to make your trade. Manually created baskets will increase your transaction costs, though your broker may offer something premade.
If you're using a synthetic exit/entrance strategy, you pair up your chosen bullish currency with your chosen bearish currency in a single order and use synthetic positions to swap out either side with some other currency if you feel the change will be an improvement. This actually decreases your transaction costs (as compared to exiting and then re-entering), although depending on the broker it may also decrease your available margin.
Or are you trying to do both? A dynamically adjusted basket sounds like a massive headache. Be prepared for tricky differential equations, wildly fluctuating leverage (again, depending on how your broker handles combined positions), and tons of transaction costs. I wouldn't attempt anything like that without:
1. fairly sophisticated graybox assistance
and
2. a very good reason (edge.)
Disclaimer: My financial modeling background is solid but I'm still getting the hang of forex logistics. In particular, I'm still a bit fuzzy on how things play out if you're trading cur1/cur2 but your account is denominated in cur3. Just want to clarify I am by no means an expert; I've been looking at forex for maybe two or three days now.
If you're using a basket philosophy, you don't think in terms of pairs, you think in terms of a single currency as compared to the rest of the world. How you define 'the rest of the world' does matter, but it's something to define early on and keep fairly constant, not something you figure out just as you are about to make your trade. Manually created baskets will increase your transaction costs, though your broker may offer something premade.
If you're using a synthetic exit/entrance strategy, you pair up your chosen bullish currency with your chosen bearish currency in a single order and use synthetic positions to swap out either side with some other currency if you feel the change will be an improvement. This actually decreases your transaction costs (as compared to exiting and then re-entering), although depending on the broker it may also decrease your available margin.
Or are you trying to do both? A dynamically adjusted basket sounds like a massive headache. Be prepared for tricky differential equations, wildly fluctuating leverage (again, depending on how your broker handles combined positions), and tons of transaction costs. I wouldn't attempt anything like that without:
1. fairly sophisticated graybox assistance
and
2. a very good reason (edge.)
Disclaimer: My financial modeling background is solid but I'm still getting the hang of forex logistics. In particular, I'm still a bit fuzzy on how things play out if you're trading cur1/cur2 but your account is denominated in cur3. Just want to clarify I am by no means an expert; I've been looking at forex for maybe two or three days now.