DislikedAnd one crystal-ball post.... AUDUSD bounce at 0.6558. Mark the line on the chart and scroll backwards.Ignored
{quote} It is a cross, absolutely. But here is the problem, if its directly tied to whatever EU and GU are doing then it would be 100%...but you and I both know it's not 100%.. So if it's not 100% then it cannot be directly tied...which means it must have its own driving force... Or that's how my pea brain logic works but plenty of experts out there as we know...By the way, just want to confirm that Dave is one of the best traders that I have ever come across
Just want to make that clear so that there is no confusion as to my...
If they were not, any triangular hedge arbitrage algo would be making a complete mockery of the markets.
anyway, carry on with your circle of beliefs, stiff upper lip and all that..
if you don't do your maths, the maths will do you.
- | Commercial Member | Joined Aug 2014 | 3,852 Posts | Online Now
{quote} Sorry moodybot, but of course they're directly tied If they were not, any triangular hedge arbitrage algo would be making a complete mockery of the markets. anyway, carry on with your circle of beliefs, stiff upper lip and all that..
in a way, you are right,
but then there are the numbers.
for test, 2 images, less than 90 min apart.
each pair is about 1 pip spread. the difference is about 2.5 pips worth...in the perfect textbook triangular hedge world, it would be impossible...but then is it?
and another 40 min later...
there is always, always another trade!!
- Joined May 2010 | Status: Straight line Fest | 2,916 Posts
{quote} Moody Good call on 0.65393 AUD. What was your thought process behind that level apart from the obvious high for the 11/3.
- | Commercial Member | Joined Aug 2014 | 3,852 Posts | Online Now
{quote} hi in a way, you are right, but then there are the numbers. for test, 2 images, less than 90 min apart. each pair is about 1 pip spread. the difference is about 2.5 pips worth...in the perfect textbook triangular hedge world, it would be impossible...but then is it? {image} {image} and another 40 min later... {image}
the conclusion:
despite what the books tell, the common sense would suggest, and the math should be...
THE FACT is that there is discrepancies, big enough, in a triangular hedge.
sometimes it is relative simple to do the actual test.
Bonus:
the common sense would suggest if the direction of the trades would be flipped, the negative swap rate should be positive, and the long term a risk free swap collected.
THE FACT is that currently even if the trades flipped, the swap rate would be still negative ( on these pairs combination the very least).
When in doubt, do your homework!
happy trading!
there is always, always another trade!!
{quote} a small ( and final) update, an hour after rollover...even if all swap excluded, the perfect triangle arbitrage showing an even bigger imperfection. {image} the conclusion: despite what the books tell, the common sense would suggest, and the math should be... THE FACT is that there is discrepancies, big enough, in a triangular hedge. sometimes it is relative simple to do the actual test. Bonus: the common sense would suggest if the direction of the trades would be flipped, the negative swap rate should be positive, and the long term a risk...
I took current rates in the morning:
- EURUSD: 1.08593
- GBPUSD: 1.24682
- EURGBP: 0.87088
1. Buy 1 lot of EURUSD for 1.08593 -> you bought 108 593 EUR for 100 000 USD (+108 593€, -100 000$)
2. Sell 1 lot of GBPUSD for 1.24682 -> sold 124 682 GBP for 100 000 USD (-124 682£, +100 000$)
3. How many lots of EURGBP I need to balance hedge?
From 1. and 2. we have on our account:
(+108 593€, -124 682£)
USD was balanced (-100 000$ + 100 000$ = 0)
So what position on EURGBP we need to take to balance € and £?
We need to SELL € and BUY £ => SELL EURGBP to balance what we have on our account
If we sell 1.24 lots of EURGBP for 0.87088, we will get (-107 989€, +124 000£)
Positions are more or less balanced, there comes rounding and spread into calculation. In the end we have position:
- Buy EURUSD: 1 lot
- Sell GBPUSD: 1 lot
- Sell EURGBP: 1.24 lots
Now whereever will market move, you will have "constant" profit/loss (not including swaps). It will ofcourse float around a little as there is this lots rounding and spread in play, anyway it will be more or less stable.
I found one opened triangular hedge on my demo account from March. You can see same idea of triangular hedge on AUD, JPY and USD currencies. Net loss -603.18 is because of swaps. If you sum only profits (-910.00 + 549.33 + 339.68) you will get -20.99 loss. I was observing this loss for some time and after nearly 2 months the loss is still around this value.
What I'm thinking about is if the cross pair EURGBP has its own market depth or algo targeting stops.
I think about it this way. My country currency is CZK. If I want to travel to Vietnam (with VND currency), I need to exchange CZK for VND. Both currencies are not very known and publicly traded.
I don't think there is direct exchange market for VNDCZK. Sure you can create a synthetic chart for them using CZKUSD and VNDUSD rates. But in the end you will end up exchanging CZK for USD and after that USD for VND. Isn't it same with EURGBP? Or any other cross pair? I don't know, just my thoughts about cross pairs.