Making a synthetic Gbp/Jpy order | Forex Factory

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Making a synthetic Gbp/Jpy order

  • #1
  • First Post: May 8, 2007 11:12am May 8, 2007 11:12am
Hi
How do I make a synthetic gbp/jpy order.

eg. If i wish to long the equivalent of 1 standard lot of gbp/jpy. In what proportions and in which direction, would I simultaneously trade gbp/usd and usd/jpy?
another INTP
  • #2
  • May 8, 2007 11:19am May 8, 2007 11:19am
Well, 1 GBP/JPY should be equivalent to 1 GBP/USD...the # of lots to purchase for the USD/JPY should equal the GBP/USD rate.

So, for simplicity, let's say the GBP/USD rate is 2.000, you would short 2 USD/JPY lots for the equivalent.

Quoting anthonybaker
Hi
How do I make a synthetic gbp/jpy order.

eg. If i wish to long the equivalent of 1 standard lot of gbp/jpy. In what proportions and in which direction would I simultaneously trade gbp/usd and usd/jpy?
  • #3
  • May 8, 2007 11:32am May 8, 2007 11:32am
I believe there is no simple answer to this question. If you are long GBPJPY in anticipation of a rise, there are a number of scenarios that will produce the same result via the other 2 pairs.

For example, the GBPUSD may drop in price, but the percentage drop is less than the percentage gain in USDJPY, hence GBPJPY increases.

OR

Both the GBPUSD and the USDJPY gain in price, in which case GBPJPY increases even more. Notice that we can bring the EUR (which is a big player) in as well so the equation becomes:

GBPJPY = GBPUSD*USDJPY*EURJPY*1/EURGBP

In any case, why do you want to do this? Just trade the pair you want to trade. My advice is to keep an eye out on the market as a whole, and go in with a bold heart.

Cheers,
-P
Virtue finds and chooses the mean. Aristotle, Ethica Nichomachea
  • #4
  • May 8, 2007 11:34am May 8, 2007 11:34am
I think thats wrong.
GBP/JPY is buying GPB and selling JPY. If you sell USD/JPY, then you are buying JPY, not selling. Plus you have big positive swap rate for GBP/JPY and big negative swap rate for the trade mrmikal described. A better solution would be to sell EUR/GBP (buying GBP) and buying EUR/JPY (selling JPY) and your swap now moves to positive territory.

But if your reason is to avoid large spread, you still have approximately the same with the two currency synthetic trade. Plus you lose the volatility of GBP/JPY. I really don't see any advantage to using a synthetic GBP/JPY trade.
  • #5
  • May 8, 2007 11:46am May 8, 2007 11:46am
right...sorry...I meant buy the USD/JPY

You buy 1 GBP/USD and buy ~ 1.99 lots of the USD/JPY. That's the equivalent.

Not sure what you want to do with that, exactly.

Quoting bhale
I think thats wrong.
GBP/JPY is buying GPB and selling JPY. If you sell USD/JPY, then you are buying JPY, not selling. Plus you have big positive swap rate for GBP/JPY and big negative swap rate for the trade mrmikal described. A better solution would be to sell EUR/GBP (buying GBP) and buying EUR/JPY (selling JPY) and your swap now moves to positive territory.

But if your reason is to avoid large spread, you still have approximately the same with the two currency synthetic trade. Plus you lose the volatility of GBP/JPY. I really don't see any advantage to using a synthetic GBP/JPY trade.
  • #6
  • May 8, 2007 11:57am May 8, 2007 11:57am
Check it here. It maybe helps.
But in short, YOU CAN NOT. Sorry.

http://www.forexfactory.com/showpost...23&postcount=2
凹凸 only
  • #7
  • May 8, 2007 12:04pm May 8, 2007 12:04pm
Oh, I dunno...I'm sure there are spread issues, but let's see

If the GBP/USD = 2.000 and the USD/JPY = 120.00, then in theory, the GBP/JPY should be 240.00 (to avoid arbitrage)...so let's assume that to be the case.

If you buy 1 GBP/JPY, you are buying 100K GBP and selling 24M JPY (100K * 240.00).

If you buy 1 GBP/USD and buy 2 USD/JPY you were buying 100K GBP, selling 200K USD, then buying 200K USD and selling 24M JPY (200K * 120.00). If the USD orders are equal, then they cancel out, and thus you are buying 100K GBP and selling 24M JPY...that would be equivalent to me...

Aside from issues with the spread, do we see a problem with the math?

Quoting Samuri
Check it here. It maybe helps.
But in short, YOU CAN NOT. Sorry.

http://www.forexfactory.com/showpost...23&postcount=2
  • #8
  • May 8, 2007 1:02pm May 8, 2007 1:02pm
Try to test it a bit with the attached excel file.

You can not precisely preset the 'X' in advance, hence risk is not avoidable.

Correct me if I miss anything.

P.S. : not allowed to upload excel file, I put a picture instead.
Attached Image (click to enlarge)
Click to Enlarge Name: synthetic.jpg Size: 79 KB
凹凸 only
  • #9
  • May 8, 2007 1:41pm May 8, 2007 1:41pm
Ummm...yeah...your math is wrong.

I attached my spreadsheet using your same amounts. Don't forget when converting GBP/JPY back to USD you need to divide by the USD/JPY rate.

so, in your first p/l row, the GBP/USD goes up 80 pips and the USD/JPY falls 70 pips...this means that you gain $800 on the GBP/USD and you lose $1173.51 ($1173.51 = (-70 pips) * 2 lots * 100,000 USD / the current USD/JPY rate [119.30]) in the USD/JPY. Combined P/L = -$373.51 ($800 - $1173.51).

If you look at the rate of the GBP/JPY which goes to 239.55, you lose 45 pips which means you lose $377.20 ($377.20 = 45 pips * 100,000 GBP / the current USD/JPY rate [119.30]).

Check out my adjusted spreadsheet and let me know if it's unclear.

Quoting Samuri
Try to test it a bit with the attached excel file.

You can not precisely preset the 'X' in advance, hence risk is not avoidable.

Correct me if I miss anything.

P.S. : not allowed to upload excel file, I put a picture instead.
Attached Image (click to enlarge)
Click to Enlarge Name: worksheet.JPG Size: 65 KB
  • #10
  • May 8, 2007 1:43pm May 8, 2007 1:43pm
Sorry, the sheet didn't show the GBP rates
Attached Image (click to enlarge)
Click to Enlarge Name: worksheet.jpg Size: 66 KB
  • #11
  • May 8, 2007 3:11pm May 8, 2007 3:11pm
Quoting bhale
But if your reason is to avoid large spread, you still have approximately the same with the two currency synthetic trade. Plus you lose the volatility of GBP/JPY. I really don't see any advantage to using a synthetic GBP/JPY trade.
It's a synthetic. You're not going to lose the volatility. The next time GBPJPY makes a run down, watch EURJPY.

Also, your spread IS a huge difference. GBPJPY on most platforms is a whopping 7 pips. EURGBP is 2, and EURJPY is 2.5-3. So we're talking 5 pips max versus 7.

A big difference over a year's time. the question really comes down to do you want to have to manage two pairs for the sake of spread, especially if you're a medium term (daily+) trader? The answer to that is no.
Mr. Trend
  • #12
  • May 8, 2007 10:25pm May 8, 2007 10:25pm
As OP I feel compelled to show interest in my thread. I have little of value to offer in the maths discussions. Other than to thank all contributors so far, for a very interesting thread.
another INTP
  • #13
  • May 9, 2007 12:48am May 9, 2007 12:48am
GBP/JPY spread on EFX is from 1 pip to 4 pip..... just thought you would like to know..
Same Whore .... Different Dress
  • #14
  • May 9, 2007 12:52am May 9, 2007 12:52am
I definitely agree that with MBT or EFX, you'll reduce your cost on this pair, but just so there isn't any confusion, the spread is 1-4 pips + about $20 in commissions (round-trip for 1 standard lot).

It's still a heck of a bargain...but full disclosure is always best.

Quoting johnedoe
GBP/JPY spread on EFX is from 1 pip to 4 pip..... just thought you would like to know..
  • #15
  • Edited 1:28am May 9, 2007 1:17am | Edited 1:28am
Quoting mrmikal
I definitely agree that with MBT or EFX, you'll reduce your cost on this pair, but just so there isn't any confusion, the spread is 1-4 pips + about $20 in commissions (round-trip for 1 standard lot).

It's still a heck of a bargain...but full disclosure is always best.

Good point ... forgot to mention that...

forgot to mention.... Oanda spread for that pair is usually around 4 or 5 pip, beats the heck out of 8....
Same Whore .... Different Dress
  • #16
  • Last Post: May 9, 2007 9:08pm May 9, 2007 9:08pm
Quoting johnedoe
Oanda spread for that pair is usually around 4 or 5 pip, beats the heck out of 8....
Oanda's GBPJPY spread has NEVER been 4 or 5 pips. I've never seen it. It's 8 during off hours, and 6-6.5 during peak...
Mr. Trend
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