Swap Master - Market Neutral Arbitrage Trading

Swap Master - Market Neutral Arbitrage Trading

I would like to introduce a new trading concept and software we have been working on the last two years. As the name indicates, it is a swap trading system.

The idea of taking advantage of positive swap rates is of course not new. What is new is that Swap Master is taking advantage of positive swap rates while keeping all trading positions hedged against each other. This means that it does not matter if the price goes up or down. All what matters is that there is a reasonable difference in swap rates.



The Concept behind Swap Master

There exist significant differences between interest rates and large differences in swap rates between forex brokers. The Swap Master software connects broker accounts with high swap rates and low swap rates to one central unit and then trades them against each other.

What makes the concept and the software unique is the fact that all trading positions are boxed. And with boxed, I mean that they are fully hedged. Always!
This cuts the risk connected with directional trading to ZERO. (1)

The Software

To take advantage of different swap rates, the software connects two or more trading accounts to one central control unit. The control unit manages all trades and monitors all connected trading accounts. Secondary units are used to exchange data with the central unit and to collect data for portfolio research.

While the software is technically very advanced, it is not difficult to use. Both units (Master and Slave) come with graphical user interface, one click buttons for all important functions, detailed documentation and we provide of course full support.





Profit Potential

Between 4 and 12 percent p. month. While daily gains do not depend on market conditions, they do depend on the complexity of the portfolio, the swap rates, the research quality and of course the position size. Because of it's consistency, gains add up very quickly. Especially when you reinvest them on a quarterly or monthly base.



Strength and Weaknesses

+ All trades are permanently hedged. There is no directional trading risk.

+ Projected returns are very reliable because brokers change their swap rates rarely.

+ Once a portfolio is setup, everything is done by the software.

+ We developed a vast amount security functions to ensure all trades are always under full control of the software.

+ Market volatility is declining. This translates to very few re balancing cycles per year. (1-2 for simple portfolios)

- It is not a system for magic bean believers and needs to be used as intended, If overpowered on underfunded accounts or used for not hedged portfolios it will not end well for the user.

- Sadly, it is not suitable for US traders because the number of brokers what accept US clients is very limited.

More Information

A more detailed description including forward trading results and more screenshots is available on here: Forex21 - Swap Master (https://forex21.com/swapmaster/)

All qualified questions are welcome.

---
(1) No Directional Trading Risk does not mean that there is no risk at all and you should bet the farm. The possibility that your broker goes bankrupt and as result you lose a part of your portfolio deposit still exist. However, in comparison with ‘classical’ trading systems the risk is very little.

Frequently asked Questions

Does this work with regulated Brokers?

Yes. As a matter of fact, you should only trade with fully regulated brokers. IC Markets, Dukascopy and many others are suitable, are fully regulated and have solid reputation.
___________

What is the min. deposit?

The technical minimum is defined by the broker. Usually 10-100$. Our recommendation is a min. of 1000$ / portfolio.
___________

How many broker accounts do i need?

At least two.
___________

Does this work with any broker?

No. The right combination matters. There is a possibility that you can use your existing account(s). If they are not suitable, you have to open at least two new ones.
___________

Is this legal?

Yes.
___________

Are trades really ALWAYS hedged?

Yes.
___________

What if the Broker finds out what I am doing?

Nothing. You are holding a trading position and receive or pay interest in the form of swap for holding the position overnight.
___________

How do I find profitable combinations?

We share our research with clients and we also provide detailed guides about how you can do your own research.
___________

Is the system sensitive to slippage?

Not at all. Trades stay open for a long time and if you loose a pip or two here and there because of slippage it wont hurt the overall performance.
___________

Note: The editing period for this post is ending. More frequently asked questions and answers will be posted on our support forum. Here is the link to it: Forex21 - Swap Master Forum (http://Forex21 - Swap Master Forum)

how many brokers can we use?

The main unit (master) can be used on five accounts at the same time. There is no limitation for the secondary (slave) units. That translates to 20 portfolios what you can run at the same time.

thanks for that, lastly, can it work on demo accounts as well. I mean, would we be able to test the concept on demo? After purchasing it, or does it only work on live accounts?

Yes, of course. Using it first on demo accounts is a good idea. Connecting accounts, setting up portfolios etc., that's tasks what are not difficult but when you use the software for the first time it is good to know that nothing costly happens when you press a wrong button.

Such a rare case when a system looks solid and reasonable.
I'll watch the updates here.
Good luck!

The issue I see here is for example one gets paid less swaps on a euro short than one would have to pay out for a Euro long so how can you make money hedged you would end up paying more every day than you collect???


Cheers


Jeff

Hello Jeff.
If you enter a long and short position of equal size on the same broker account your position will be 100% hedged but you will loose money consistently. So, that would be kinda counterproductive.

But if you enter a long and short position of equal size on two different broker accounts (with positive swap difference), your position will be 100% hedged and you will make consistently money.

Now, going EURUSD long and short is what jumps to the mind first but it is actually not best choice because the difference is interest rates is not very high. But it still would work.



9.97-1.15*30 Days =264.6.....2.64%/month



More complex portfolio constructions boost gains to 7% or more and this is where things start to be interesting.



I hope this helps! Please let me know if you have any further questions.

Very interesting.



Thanks

Jeff

I believe you want any technical questions to be on the forex21 forum, so ive posted a question there.

Yes. Thank you.

What size leverage do you typically use per position?



Thanks

Jeff

It depends.

1) What you trade
If you trade with very volatile instruments you will need to trade with relative small size. On the other hand, if you trade with instruments what are not very volatile you can trade larger.

2) Re balancing
If you are not willing to re balance your portfolio every quarter you need to lower your trade size and if you are willing to re balance it every month you can trade larger.

Fortunately, it is not difficult to find the right size. Swap Master calculates volatility and draws you levels on the chart. This info is very helpful to determine the right size for the trades. And in case you get it wrong it is also not a big problem, because you can close trades partially or add some size.

As I understand you recommend specific brokers for the best swap combinations.
Does rebalancing work quick by them?
If I got it correct - I have to withdraw some profit from an account by broker A and fund it to an account by broker B. How long does this routine take?

Yes, we provide examples for portfolios but you can and should do your own research as well.

Re balancing is quick. You have two options:

1) You can stop the portfolio, re balance them and then keep trading. (This takes usually 1-3 business days) Withdrawals are usually free and funding fees depend usually from your bank.

2) You add funds to the account what runs low from your piggy bank and then withdraw from the other account. If you handle it this way, the portfolio can keep running (and earning) and your re balancing costs are lower because you do not have to place the trades again.

Thank you for clarification. I am totally convinced now
The whole concept makes a lot of sense to me.
I'm in. I will keep posting here my updates for other folks.

You are welcome. Let me know if you have further questions.

It is pretty pretty similar to what we describe as "Vanilla Swaps". There are 2 primary risk on this strategy, interest rate risk and credit risk, which also commonly known as counterparty risk. I think the major concern here are more on the chosen forex broker goes default on its responsibility. Maybe some will ask what about slippage or maybe live feed lagged? It doesn't matter much in my opinion because as long as you calculate the trading cost which includes spreads and commission, implementation shortfalls doesn't affect much because if the interest rates doesn't change much, you don't really need to re-balance your position that often.

Well, one could argue that a portfolio generates some kind of generic swap but that's where the similarities ends. Interest rates do change of course over time but i do not see that as a risk because when some go down, others will go up. I see it like this: The game stays the same but the players change from time to time. That's ok.

Forex Brokers can go bankrupt but when you trade with regulated firms it is very unlikely that you will loose some or all of your deposit. ASIC regulated brokers are required to keep all client funds in segregated accounts. Other regulation authorities have similar safety requirements. But yes, at the end there stays some small risk. My opinion is that if a trader cannot deal with this tiny and mostly hypothetical risk he or she should put his or her money in a sock and hide it under the bed. Trading is the last thing they should do.