Spreading Forex

Quote from oldtime:

well, CHf/JPY is already a spread, maybe spread is not the right term, I just spread it out over 5 currencies, like AUD, CAD, EUR, GBP and USD. You pay more in commisions and spreads in exchange for flexibilty. It involves a lot of scaling in (including averaging down.)

Averaging down gets a bad rap, but if one of your losers has not been stopped out and starts moving better than anything else you have on why not add to it? It would be a an entry signal if you hadn't already entered too early. (but I keep them on a short leash, and if they don't perform they get cut back)
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but to put it in simple terms, you can go long CHF/JPY

or you could go short USD/CHF and long USD/JPY, same difference if you are keeping score in USD, but twice the expense. But later you may want to add to one side and not the other.
 
Here is a hint that might be help you break out in your thoughts: suppose you take the synthetic at a given date and spread it with the pair. Look at the difference at a far off date? You should notice that the synthetic pair, and the price of the pair are not the same anymore. So ask yourself why is that? Take the closing price of the currencies to do your calculations. Also notice that you have not yet considered the cost of carry.
 
Quote from tradingjournals:

Here is a hint that might be help you break out in your thoughts: suppose you take the synthetic at a given date, and look at it as far off date? You should notice that the synthetic pair, and the pair price are not the same anymore. So ask yourself why is that?
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or you could just tell us, I don't like to think and I don't mind if I look stupid,

All I can tell you is I have small CAD/CHF that has been giving me problems all day and a relatively large CAD/JPY that is paying for all my losses and then some
 
Seems reasonable since the pricing of a pair is based on the difference between two currencies.

ES


Quote from oldtime:

but to put it in simple terms, you can go long CHF/JPY

or you could go short USD/CHF and long USD/JPY, same difference if you are keeping score in USD, but twice the expense. But later you may want to add to one side and not the other.
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Quote from ogarbitrage:

Not sure that's accurate. This guy may have some insights for you:

http://frontrunthedelta.blogspot.com/search/label/triangular arbitrage
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thanks og. Atticus reccommended doing a google search on triangular arbitrage, but that stuff is all over my head. Most of it is for big boys. I'm just a little itty bitty guy so the spread is not the biggst concern.

otherwise, kind of hard to lose money when the ul is up 1.5% like it was today. But you are correct, most of the money was made in CAD and AUD, so I guess that makes it more volatile than just CHF/JPY.
 
I think what you actually want to do is hedge Forex. Let's assume that GBP/USD and EUR/USD will both trade up when the dollar weakens.

You could also just hedge EUR/USD by itself if you open 2 separate broker accounts.

But for sake of argument, the goal of hedging is to allow you not to use a stop and not get blown up on a news event.

So for example, you take an equal position long EUR/USD and short GBP/USD. You could also just take a long position on EUR/USD, but if it goes against you have a stop order to get you short GBP/USD.

Let's assume EUR/USD is going up, and you have a short on the GBP/USD which is losing you money. You believe the GBP/USD will start to go down soon, so you could then add to this losing position a little.

Now we have 2 possible outcomes:

1) GBP/USD continues to go up and against your position. You could then add to your EUR/USD long to balance out the position or continue to hold.

2) GBP/USD start to go down, and then you could take off the added contracts at a profit bringing you position back to net balance.
 
nope, I don't want to hedge, just looking for a mover. In my case, if something bad happens to CHF or something good happens to JPY I will be closing like crazy
 
but yeah, scaling in and out over 5 currencies can keep you in the game wheras with the same size outright I would be stopped out.
 
Ok, I now get it. You want to take a position both long and short a currency pair. If one side is starting to move, you add to that side, while either keeping the other the same or decreasing the side that is losing.

This could also be done by having 2 accounts, and moving the money between the accounts, or by how you are doing it now.

The system does well if you catch a trend, and does poorly if the markets range.

I don't know if its spreading or not.

For example:

What Does Bull Call Spread Mean?
An options strategy that involves purchasing call options at a specific strike price while also selling the same number of calls of the same asset and expiration date but at a higher strike. A bull call spread is used when a moderate rise in the price of the underlying asset is expected. The maximum profit in this strategy is the difference between the strike prices of the long and short options, less the net cost of options. Most often, bull call spreads are vertical spreads.

Read more: http://www.investopedia.com/terms/b/bullcallspread.asp#ixzz1cFyR5F7M


Quote from oldtime:

nope, I don't want to hedge, just looking for a mover. In my case, if something bad happens to CHF or something good happens to JPY I will be closing like crazy
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