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Three Pairs Hedging

  • #1,021
  • Jun 30, 2017 2:35pm Jun 30, 2017 2:35pm
Quoting Nicholishen
{quote} This demonstrates a complete breakdown in the understanding of how forex works. Hedging in forex means that you are long and short an equal amount of units on each currency. So if you were to go long 1 std lot of EURUSD you'd have: 100,000 units long EUR and ~114,000 short USD. In order to hedge the EUR you'd need to go short EURGBP with 1 std lot to have: 100,000 units short EUR and ~87,800 long GBP. Therefore, in order to hedge the GBP/USD you would need to short 87,800 units of GBPUSD, Which means you would automatically be long 114,000...
good basic math. and swap is even not counted, or slippage, or offquotes, and and and ...
  • #1,022
  • Jun 30, 2017 2:46pm Jun 30, 2017 2:46pm
Quoting dukas_trader
{quote} good basic math. and swap is even not counted, or slippage, or offquotes, and and and ...
There are exactly two ways to benefit from this system

  1. You have direct access to multiple LPs and a setup that can send asynchronous orders in under a ~millisecond. This also requires proper calculation of the fractional product and lot sizes for entry. No arbitrary random entries.
  2. Interest rates of nations increase significantly to the point where you can be completely hedged in a ring while collecting net positive swaps.

Anything else is a foolish waste of money.

  • #1,023
  • Jun 30, 2017 3:04pm Jun 30, 2017 3:04pm
Quoting dukas_trader
{quote} the problem is, its total impossible to hedge it completely. you can hedge most parts, but small parts will still be open all the time. and this parts decide often the wins or loss.
BTW, Oanda offers position sizes down to the unit. So practically speaking you actually can have an exact hedge. If/when swaps go more positive AND the CFTC increases the limits on leverage - that's where I'll be
  • #1,024
  • Jun 30, 2017 3:07pm Jun 30, 2017 3:07pm
Quoting Nicholishen
{quote} BTW, Oanda offers position sizes down to the unit. So practically speaking you actually can have an exact hedge. If/when swaps go more positive that's where I'll be
the unit size is not the problem, this have many "real" brokers. but you calculated correctly, only in 1 currency you can hedge complete, but would be stupid, because always loss.
  • #1,025
  • Jun 30, 2017 3:18pm Jun 30, 2017 3:18pm
Quoting dukas_trader
{quote} the unit size is not the problem, this have many "real" brokers. but you calculated correctly, only in 1 currency you can hedge complete, but would be stupid, because always loss.
That's not correct.

If I enter these exact lots at these exact prices for example:
Inserted Code
1 lot long of EURUSD @ 1.1400
Inserted Code
1 lot short of EURGBP @ 0.8700
Inserted Code
0.87 lot short of GBPUSD @ 1.31035

I would be completely hedged and my account equity would only fluctuate by pennies for the duration of the trade.
  • #1,026
  • Jun 30, 2017 3:23pm Jun 30, 2017 3:23pm
Quoting Nicholishen
{quote} That's not correct. If I enter these exact lots at these exact prices for example: 1 lot long of EURUSD @ 1.1400 1 lot short of EURGBP @ 0.8700 0.87 lot short of GBPUSD @ 1.31035 I would be completely hedged and my account equity would only fluctuate by pennies for the duration of the trade.
ah, you speak about a trade without any spread for going in and out or some arbitrage in this time of opening and closing, and no commission and rollover.
then its only risky if you have to much value in it, and risk of margin call in fast market move by big news or flash crash.
  • #1,027
  • Jun 30, 2017 3:48pm Jun 30, 2017 3:48pm
Quoting dukas_trader
{quote} ah, you speak about a trade without any spread for going in and out or some arbitrage in this time of opening and closing, and no commission and rollover. then its only risky if you have to much value in it, and risk of margin call in fast market move by big news or flash crash.
No... I'm not talking about arb or zero spreads or any of that business... I'm taking about entries at those prices. If I had a negative balance due to spreads going in the only fluctuations I would see in my account would be due to the widening of spreads, but other than that no fluctuations at all. (not accounting for swap)

The only way to have a margin call is if the spreads widen to the point of a complete account wipeout - we're talking super-shady-broker kind of event. A flash crash wouldn't create a margin call because you are hedged, such is the entire point of a hedge. Even my example holds up in a flash crash and would hold it's fluctuations to pennies once things settle down.

As far as roll-over goes, yes you would lose money *now*, but this wasn't always the case. Back in '05 up until rates changed... we were raking in sweet profits by arbing the swaps.

So it [was] possible [when interest rates were better] to have a completely hedged position that was entirely market-neutral while generating net positive roll-over. That was my point.
  • #1,028
  • Jun 30, 2017 4:10pm Jun 30, 2017 4:10pm
Quoting Nicholishen
{quote} No... I'm not talking about arb or zero spreads or any of that business... I'm taking about entries at those prices. If I had a negative balance due to spreads going in the only fluctuations I would see in my account would be due to the widening of spreads, but other than that no fluctuations at all. (not accounting for swap) The only way to have a margin call is if the spreads widen to the point of a complete account wipeout - we're talking super-shady-broker kind of event. A flash crash wouldn't create a margin call because you are hedged,...
1 margin call: correct and wrong same time maybe:

flash crash example:
if you have to much exposure, lets say even only eurusd buy and sell (for make it easy to calculate) you told correctly that only wipe out (margin call can kill account). and thats is what can happen when exposure is to high and some big news or flash crash happens. your hedging is worthless in this kind, but this ofcourse depends on the broker, how it will calculate your risk. when a normal broker will calculate the open positions, then you have 1 sell open and 1 buy. when there would be a extrem big spread in flash crash (maybe 500 pips in 2 seconds), then you have 500 pips minus exactly at this moment, because buy is 250 pips in minus and sell too.

so this can only be avoided by no big exposure and by broker will not count it this normal way (best is net it).

2. entry at this prices: thats not very often the case, if you put in slippage, commission (in spread ) and spread together, you would have EURGBP @ 0.8700 as ask value, but you need to sell with bid value. (by get arbitrage in this point you can wait until this sometimes happens, but still the slippage problem will have a risk in this, not to speak about ofquotes, connection problems,...)

its late for this theoretics, i hope it was possible to understand , and not to bad english.
  • #1,029
  • Jun 30, 2017 4:34pm Jun 30, 2017 4:34pm
Lot size equivalencies are the same as exchange rate equivalencies.
Open to new approaches.
  • #1,030
  • Jun 30, 2017 4:41pm Jun 30, 2017 4:41pm
Quoting dukas_trader
{quote} 1 margin call: correct and wrong same time maybe: flash crash example: if you have to much exposure, lets say even only eurusd buy and sell (for make it easy to calculate) you told correctly that only wipe out (margin call can kill account). and thats is what can happen when exposure is to high and some big news or flash crash happens. your hedging is worthless in this kind, but this ofcourse depends on the broker, how it will calculate your risk. when a normal broker will calculate the open positions, then you have 1 sell open and 1 buy....
1. By that logic you would also get a margin call if you were long/short (hedged) on the same pair.
2. I'm not talking about making money, I'm talking about fluctuations in a hedged position. If my position is net zero-units then the ONLY fluctuation in price is accounted for by the abnormal fluctuations in the spreads. So if I was -10.00 going into the position (spreads and commissions) then I will always be -10.00 in floating P&L (not accounting for swaps).
  • #1,031
  • Jun 30, 2017 4:45pm Jun 30, 2017 4:45pm
Quoting MetaCoder
Lot size equivalencies are the same as exchange rate equivalencies.
No... they are a function of exchange rates, but they are not equivalent.

counter currency units = base currency units * exchange rate
  • #1,032
  • Jul 1, 2017 10:58am Jul 1, 2017 10:58am
Quoting whitearrow
Well I did do some quick rough mashup and I got these two {image} The first one tracks the movement of the entire ring for all the various trade types. you can turn the color off to shut off a type. (PropMovement) Its three trades with their reciprocals. Theoretically if you enter a trade at max negative it will end up in positive by the time it crosses zero. THEORETICALLY!! The second one is the absolute movement of each pair in the ring (Individual Movement) They get a little sticky because of the three pairs but they should be ok {file} {file}...

Hi everybody, I take some indicator from this thread (not joung: 2014) to show correlated pairs in action in overlay... I modify it and add some indicator of "spread" to evaluate divergence to the mean (with a Bollinger band).

I'm also trying to do it working with this ea with icustom function. But for some reason (maybe the number of calculation too high...), I obtain empty value...

Could someone have a look to this code?

Spread&Overlay : indicator file
Icustom_Multi Spread : EA file

Thanks!
Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot1.png Size: 49 KB
Attached File(s)
File Type: mq4 Spread&Overlay 0.0.2.mq4   12 KB | 589 downloads
File Type: mq4 icustom_Multi Spread EA 0.0.1.mq4   12 KB | 539 downloads
  • #1,033
  • Jul 1, 2017 4:23pm Jul 1, 2017 4:23pm
Quoting Nicholishen
{quote} 1. By that logic you would also get a margin call if you were long/short (hedged) on the same pair. 2. I'm not talking about making money, I'm talking about fluctuations in a hedged position. If my position is net zero-units then the ONLY fluctuation in price is accounted for by the abnormal fluctuations in the spreads. So if I was -10.00 going into the position (spreads and commissions) then I will always be -10.00 in floating P&L (not accounting for swaps).
1. aehmm yes. my example was with only long/short in one pair. i would never do so, i simple open net positions to have smallest risk with minimal costs.
  • #1,034
  • Jul 1, 2017 5:25pm Jul 1, 2017 5:25pm
Quote
1. aehmm yes. my example was with only long/short in one pair. i would never do so, i simple open net positions to have smallest risk with minimal costs.

Maybe there's a language barrier here... We both agree that hedging is a waste of money. I'm asking theoretically, how is it possible to get a margin call when your net position size is zero?
  • #1,035
  • Jul 1, 2017 8:49pm Jul 1, 2017 8:49pm
Quoting Nicholishen
{quote} Maybe there's a language barrier here... We both agree that hedging is a waste of money. I'm asking theoretically, how is it possible to get a margin call when your net position size is zero?
yes, theoretic not possible, but in real account possible because of this situations.

and yes, we have both exact same that someone waste money with hedging, at least wasting many many many time.

you did all 100% correct, my answer was only to addon, that it can be a margincall in reality, when to high exposure and broker will count positions as seperate positions each and some event with big spread will happen.
  • #1,036
  • Jul 2, 2017 9:53pm Jul 2, 2017 9:53pm
look the screen, the equity from tf h4 is completely different to the daily!!! (notice near the white square, is 14 gen 2015).


if i buy the same sets at 14 gen 2015, at 17-18th i will must have the same results, not -200 usd or +5 if tf is h4!!!
Attached Image (click to enlarge)
Click to Enlarge Name: Untitled.png Size: 108 KB
  • #1,037
  • Edited 5:42am Jul 3, 2017 5:28am | Edited 5:42am
welcome more guys to here discuss this thread.
by testing, i know the 3 pairs hedge is working. now i post a ea, please test.
Attached File(s)
File Type: ex4 ! 3P Hedge v1.0.ex4   17 KB | 1,009 downloads
  • #1,038
  • Jul 3, 2017 5:56am Jul 3, 2017 5:56am
the purpose of 3 pairs hedging is to reduce DD, and then gain pips.
  • #1,039
  • Jul 3, 2017 5:56am Jul 3, 2017 5:56am
Quoting lghr
welcome more guys to here discuss this thread. by testing, i know the 3 pairs hedge is working. now i post a ea, please test. {file}
Please do.
  • #1,040
  • Jul 3, 2017 6:52am Jul 3, 2017 6:52am
Quoting lghr
welcome more guys to here discuss this thread. by testing, i know the 3 pairs hedge is working. now i post a ea, please test. {file}
Hi Lghr,

Thanks for the EA. Could you please explain the use of the EA? Does it take trades? I have attached to a chart but not actions as of yet.

Bruce
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