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Risk Free Arbitrage with Spread Betting

  • #41
  • Oct 23, 2007 9:24am Oct 23, 2007 9:24am
Quoting JochY
According to my calculations, when you add the spread, you need a sizeable move (>570 pips in GBP/USD) to profit from this strategy. I wouldn't expect that type of move, let alone 1500 pips, too often.
Well, GBP/JPY moved 1000 pips from last Tuesday 16th to todays Tuesday 23th ... 5 trading days.

May I ask how you made your calculations?
  • #42
  • Oct 23, 2007 10:13am Oct 23, 2007 10:13am
Back to the earlier point about spread - surely the 10 pip (or whatever) spread doesn't matter - the difference is made up when you close the trade

e.g. when trade opened
240.00 / 240.10

245.10 / 245.00

net difference = zero, as long as you have SB and forex accounts with the same spread?

Not clear on how we are working out the value per pip on the SB account though - can someone explain this?

Peter - perhaps you could share your spreadsheet with us?

Thanks
Jason
  • #43
  • Oct 23, 2007 11:13am Oct 23, 2007 11:13am
Quoting dasorr
Well, GBP/JPY moved 1000 pips from last Tuesday 16th to todays Tuesday 23th ... 5 trading days.

May I ask how you made your calculations?
I just played with the numbers on a spreadsheet...for example:

GBP/USD is currently trading at 2.0495 / 2.0498 , lets assume a close to 600 pip move to 1.99 / 1.9903

SB: Long at 2.0498, close at 1.99, for a -598 pip loss, at http://www.forexfactory.com/images/icons/pound.gif5 per pip that equates to http://www.forexfactory.com/images/icons/pound.gif-2,990 (-598*5) .... convert that to USD at the closing price gives you a loss of $-5,950.10 (http://www.forexfactory.com/images/icons/pound.gif-2,990 * 1.99 http://www.forexfactory.com/images/icons/pound.gif/$)

Forex: Short at 2.0495, close at 1.9903, for a 592 pip gain, at $10 per pip that equates to $5,920 (+592*10)

Outcome: $-5,5950.10 (SB) + $5,920 (Forex) = $-30.10 Loss

I don't doubt that this arbitrage works, but it does require a sizeable move. GBP/JPY seems to be a better candidate, but I have to figure out how hedge the GBP/USD movement when converting back to my base currency (USD).

Good work though!!
  • #44
  • Oct 23, 2007 12:58pm Oct 23, 2007 12:58pm
Quoting Agro
Hey peter

Thanks for sharing this little beauty. Great idea!! I love these "free money" strategies.

Just a question - how low are you able to set your pip value on the spread betting company. 41p?

I would like to try this strategy using a mini lot so as I don't require so much margin.

Cheers
no problem, glad you like it. I think IGIndex goto 50p per pip, but please don't hold me to that. I know city index minimum is 1 pound per point.
  • #45
  • Oct 23, 2007 1:00pm Oct 23, 2007 1:00pm
Quoting aeu97137
Back to the earlier point about spread - surely the 10 pip (or whatever) spread doesn't matter - the difference is made up when you close the trade

e.g. when trade opened
240.00 / 240.10

245.10 / 245.00

net difference = zero, as long as you have SB and forex accounts with the same spread?

Not clear on how we are working out the value per pip on the SB account though - can someone explain this?

Peter - perhaps you could share your spreadsheet with us?

Thanks
Jason
The spread needs to be considered when working out your profit, but on a bigger move, it wont hurt too much. I will share my spreadsheet very soon, I just need to make it understandable, it's just a mess at the moment. I am not too hot with spreadsheets, I'll sort something out though.

Cheers,

Pete
  • #46
  • Oct 23, 2007 3:10pm Oct 23, 2007 3:10pm
Quoting peterM
no problem, glad you like it. I think IGIndex goto 50p per pip, but please don't hold me to that. I know city index minimum is 1 pound per point.
Hi PeterM

IG index do 50pence per pip, but at 8.00pm rolling over your trade to the next day will cost you pips, am i correct in saying city index dont charge for rolling over.

cheers monty2
  • #47
  • Oct 23, 2007 5:31pm Oct 23, 2007 5:31pm
Quoting monty2
Hi PeterM

IG index do 50pence per pip, but at 8.00pm rolling over your trade to the next day will cost you pips, am i correct in saying city index dont charge for rolling over.

cheers monty2
Cityindex work like a normal retail FX broker. They pay/charge swap depending on the interest rate differentials. If you are long on GBP/JPY you earn 3.2 pips per day which is better than a lot of retail brokers.
  • #48
  • Oct 23, 2007 5:48pm Oct 23, 2007 5:48pm
Im still getting my head round this and cant quite get it to work, could peter point out the error in my calculation?

This is using FXCM as a broker.

Current GBP/JPY rate is 235.39

Current pip price is £4.20

Short one standard lot at market with FXCM is £100000 worth of yen

This is 23539000 yen (sounds like a shed load!)

1000 pip move up to 245.39 equals a floating profit of £4248.30

Calculated (£100000/23539000)*24539000 = £104248 (-100000)

1000 pip move down to 225.39 equals a floating loss of -£4248.30

Calculated (£100000/23539000)*22539000 = £95751.7 (-100000)

Using the starting spread bet at £4.20 per point we would have a balancing long trade of value £4200 either side , leaving us with either a £48 profit or a £48 loss.

I cant quite see how its done yet?
  • #49
  • Oct 23, 2007 6:18pm Oct 23, 2007 6:18pm
1 pip = 1000 yen on 1 lot. your profit on short will be 1m yen or -1m yen.

at 225 it will be +1m. 1m/225=4444GBP
at 245 it will be -1m. -1m/245=-4081GBP


this would leave a profit regardless of which way price moved.
  • #50
  • Oct 24, 2007 3:37pm Oct 24, 2007 3:37pm
How have you found CMSFX as a broker, ive read a few reviews and I've heard bad things about them. I checked the swap rates at city index and it would seem that unless you have a reliable swap free broker then the swap rate difference with most other brokers would wipe out most of the profits over the month it would take to accumulate. Would you say they've (CMS)been a safe bet so far?
  • #51
  • Oct 25, 2007 4:50am Oct 25, 2007 4:50am
Quoting Deadly Avenger
How have you found CMSFX as a broker, ive read a few reviews and I've heard bad things about them. I checked the swap rates at city index and it would seem that unless you have a reliable swap free broker then the swap rate difference with most other brokers would wipe out most of the profits over the month it would take to accumulate. Would you say they've (CMS)been a safe bet so far?
Never had any problems with CMS. They are a lot bigger than many retail brokers now which is a plus. The only thing is the spreads are a bit higher than some brokers, but execution has always been good. I have never traded with them during the news though.
  • #52
  • Jun 18, 2008 9:06pm Jun 18, 2008 9:06pm
Hi Peter. still using this system?

Quoting peterM
Never had any problems with CMS. They are a lot bigger than many retail brokers now which is a plus. The only thing is the spreads are a bit higher than some brokers, but execution has always been good. I have never traded with them during the news though.
  • #53
  • Jun 19, 2008 5:22am Jun 19, 2008 5:22am
yep :-)
  • #54
  • Jun 19, 2008 5:34am Jun 19, 2008 5:34am
Quoting peterM
yep :-)
hi
what broker has betting spread?
  • #55
  • Jun 19, 2008 6:49pm Jun 19, 2008 6:49pm
Quoting peterM
yep :-)
nice.. so can you spread bet against a mini forex account if you want to use less than 1 standard lot? what's the smallest trade unit for a spread bet?
  • #56
  • Jun 19, 2008 7:42pm Jun 19, 2008 7:42pm
Hi,

This is the same (word for word ) as is printed on Robie Burn's Sight The naked trader. Rob is a very sucessful writer and trader of stocks and shares. He even wrote a book about it.

If you are indeed Robie I apologize if your not I would change your wording from the first post as it's under copyright.

for others who would like to see the full article here is the link

http://www.financial-spread-betting....adbetting.html
  • #57
  • Jun 20, 2008 12:52am Jun 20, 2008 12:52am
So you have 2 accounts both 20k and you trade until one gets almost blown.
You reset both with roughly 1k profit and do it again?
That'd be a bit to complicated just to earn 1k. Or am I missunderstanding something? What would be the biggest ROI you could possibly gain with one Arb? On both accounts of course.
  • #58
  • Jun 20, 2008 6:02am Jun 20, 2008 6:02am
if its a word for word copy, then it's been copied from me!!
I wrote this originally many months ago!!
  • #59
  • Jun 20, 2008 6:04am Jun 20, 2008 6:04am
Quoting Blud4oilPrgm
nice.. so can you spread bet against a mini forex account if you want to use less than 1 standard lot? what's the smallest trade unit for a spread bet?
depends on the broker.. for IGIndex it's 1 GBP
  • #60
  • Jun 27, 2008 7:08am Jun 27, 2008 7:08am
Hi PeterM,

Since the start how many ROA% have you do ?

You trade only one arbitrage ? GBP/JPY? or GBP/USD ? GBP/CHF ... ?

Have you happy with cityindex ? No outage ?

Thx 4 u feedback.
Regards.
Ludo.
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