NZD/JPY Correlations

Hi there gxxr1130

I have been trading with them Live for about 3 and a half year now and can confirm that it works as follows:

First off, they will pay you interest on any CASH amounts you have available in you account, i.e. money that is not used as margin, just free money not being used. Just like bank would pay you a small interest on a deposit. So if you have no trades open, at least you get a little bit every day for whatever cash you have. It is not a lot hence why it is no good thinking you could make a living off of it unless you have millions in that event you might as well go put it in a regular savings account, I think the payment there would be better.

The second interest they have is the SWAP RATE which they pay/deduct on your open trades. I have already uploaded a interest table for the different currencies for all to see. Instead of paying rollover interest at 5pm like all other brokers do, Oanda actually calculates how much interest you would be getting each SECOND you have the trade open, so if you are long GBPJPY for one hour, when you close the trade, they will pay you immediately the interest for that one hour and so on…

Their max leverage is 1:50 as far as I know, hence why their interest payments are higher. The more leverage one uses the less the interest you get, hence why NF on a 1:100 or 1:400 pays less and less and less, same story with FXSol etc…

I learned of a broker on Friday that has ZERO spread, yep ZERO spread, a small commission though, but negligible. They pay/charge swap at 5pm. So imagine this, on Wednesday (3x swap day) you open a long position on Oanda, and with this zero spread guys, you keep the trade open just till before 5pm, and close it all. You get all the interest from Oanda because they pay per second, and you pay no rollover interest with the zero rate spread guy because you closed the trade before 5pm.

Once more, having two correlated pairs is not all that is necessary. We also need the pairs to be correlated on a volatility base. Of course the high spread pairs run much harder each day, if they didn’t the spreads would be low. Spreads are risk and volatility based. The first tell-tale. The volatility differential can be balanced to a certain extent via adjusted trade sizes. In the event of EURUSD and USDDKK one can go short less DKK then USD thus increasing the EURUSD short and still end with a nice interest payment each day. This of course is assuming the volatility ratio between the two pairs remain correlated.

There are many ways to pick the trade ratios. You can take USDDKK and divide EURUSD into it and you will see if you do that for many days you can get an average of 4.669…example (USDDKK / EURUSD) = 4.669 on average, it fluctuates between about 5.2 and 3.9 it seems… I can not get to much historic data on USDDKK in MT4 to reliably state this…

Another method is to simply look at the a ATR(14) of both pairs and divide it into each other, example: ATR(14) of USDDKK / ATR(14) of EURUSD This would give you a rough volatility ration…and so on and so forth.

Of course this is just usable if we can safely assume that the volatility correlation will hold as well and not just the directional correlation.

gxxr1130, it would be interesting to see how you run your math’s. These brokers can not really go mess with the interest rates to much, in fact it is not really in their power to make major adjustments accept for the miniscule one’s we see when we compare tables. The major differences are simply because of margin, you can not compare interest tables based on 1:50 with interest tables based on 1:400. Why not, simply because on a 1:400 you are lending more money on the short currency and you deposit less on the long currency.

Apart from that, if they do however decide to go all postal on their lending rates, let’em. In such an event they will cause a MAJOR arbitrage opportunity between the spot forex price they quote including their daily interest charge and the most current futures contract on that currency pair which already includes the official country interest rate in it’s price. Over time any futures contract’s price converges with the underlying cash price, due to the interest component that is running out. If these brokers think they are so smarty pants and go mess with their interest spreads, you just point me to them and I will peel them like an orange !!!

So in essence then, revealing any math’s will should not have any effect, and if it does, well, as I have just explained, it will only be to our benefit.

Best wishes,

MECER

Well, this is how I do it. You take any pair and find it's daily range. Like you said, one way is to take the ATR, but make sure you do so from the daily chart. I only do this method with exotics that I can't find daily range data on. I usually do a 20 period ATR to match the 20 day ranges found on mataf.net. Then, you take the value of the currency per pip, and multiply it by the daily range.

Ex. USD/JPY daily range 76 pips * $.82 per pip = 62.32


Do the same with the pair you want to hedge.

Ex. GBP/USD daily range 128 * $1.00 per pip = 128

Since the jpy is lacking in the DRP (what I dubbed the daily range, plus pip value), you need to add additional lots to the jpy side.

128 / 62.32 = 2.05

Therefore, you need to purchase 2.05 lots for ever lot of GBP. In my opinion, this formula is worth BILLIONS. I'm demo pairs that haven't deviated double the spread with this method. A savings account on steroids, and you don't even have to watch the screen all day. I have other formulas I created, such as finding the optimum point for closing and re-entering a trade. Have you ever heard of Freedom Rocks? I know a group of traders that uses that tool, but they close and re-enter at 1.75% account increases. If they had this formula they would know they are WAY off. I love math.

Hey, this is great. I love math’s and statistics as well. My fiancé just likes chocolates though

Anyhow, just little bit about me and my trading philosophy. I believe that each market has come into existence for a sole purpose. The share market is simply for you to purchase a right to share in the annual earnings…they do not give you all the earning but just some in the form of dividends, the rest they keep back and reinvest for the next year and so on…in the end, the share price adjusts to the size of earnings potential, this is general knowledge. One day you decide to break this agreement with the company and you get paid your capital and the rest of the money they kept back from you in the form of profit on the share price you bought and sold at – assuming it was a good company hehehehehe. Anyhow, that is the sole purpose or reason why it exists. It has nothing to do with technical analysis and jobbing the market all the time day in and day out etc..

The forex market came into existence for amongst other things to enable people to invest currency in countries with higher interest rates, like the Japanese can purchase British Pounds instead of putting the money into a Japanese bank and see it rot away.

My philosophy about trading, regardless of what market one trades is that the closer one applies oneself to the core reasons for the existence of the market one is participating in, the more successful one will be because you are on the side of the market. The further away one is working from the core reason the particular market is in existence, the less successful one is OR the harder one has to work to make a living.

I am not kicking technical analysis etc. or any other systems, just stating the reasons why I pursue these kind of matters as the one’s we are discussing and not other ways. I have been trading forex for about 3 and a half years now, using a technical system. Before that I traded share markets for about 6 years. It took me quite some time to develop my trading philosophy and now that I have it, I have reason to pursue things like we are discussing.

Anyhow, enough about that, back to business. It seems you have been working at this for some time as well and it is really great to know I’m not alone on this crusade – I wish you well !!!

Also, I’m a pro-coder and fluent in Metatrader language as well, if you need stuff to make things easier, let me know…I have build quite an arsenal of tools to visualize ideas quickly. Of course using small time frame data like 5 min in MT4 is useless for correlation etc. as the data is full of holes, but say 1 hour up to daily is just peachy.

Best wishes,

MECER

Hi,

Do you mean that, after you enter the trades, the UPL (unrealized profit/loss) does not deviate with more than double the spread of the largest spread pair ? Could you perhaps afford a small example, just so we are on the same page.

Thanks,

MECER

Hi, are you refering here to the positive/negative swings of the UPL. In other words, you will exit the setup when the UPL is up say $500-00 and then watch say a synthetic trade (not a live one - almost like a demo) untill it reaches perhaps (-$400), then re-enter the setup again, possible gaining $900-00 on capital growth plus all the interest ?

I have toyed with the above idea a bit, made a indicator that simulates the trades, having it visually it is easy to see where the extremes are.

Anyhow, thanks for sharing your thoughts

MECER

Many a times, Market just sticks to one range ..like most of last week...So its good we put half of our money in carry trade..atleast at the end of the day..our balence will keep rolling..but to make some good money..we need to trade..going with interest alone..will be too slow...and we would not want to reap the benifit of easy money when we are old

For the trading part..I go only with GBPJPY and the movement of that currency haven't changed a bit..it is very trending and very high interest bearing too..unlike GBPUSD which most people trade..which has a nasty habit of reversing a stroung trend and eating up all the balence.

People generally stay away due to 9 or 8 spread..but it is very easily re-coverable.

Last month it had 3 stroung trend..one up for 1500 PIPS and 2 down for 1000 PIPS..as we know since 2000 it has only gone up..still intraday trading up and down..will get you 10 to 15 thousand PIPS

On co-relation related stuff..i found a great article from kreslik..Im not allowed to post the link so please do google on FPI kreslik (fractional product inefficeincy) ..he explains how three currecies are inter-related instead of two as we generally think..it is a must read.

Hi there,

Well done on those GPJPY trades !!!

Yes, Kreslik is on about FPI, unfortunately it will probably never work with the retail brokers we have to deal with. With NFP on friday there was a temprorary 80 point spike in the one FPI ring, but there was no way in hell Oanda was gonna give me entries, I tried on the demo just to see what would happen, the live app went offline for a few minutes, the demo took the 3 trades, but staggered the entries, killing the edge None of the rings are interest positive either, so no use for in in that regard unless we can find brokers who have their interest tables set up in such a way that they do allow for a small interest profit. I have not yet found one though

I agree with you on also trading appart from running the interest trades. I have a simple divergence sytem which I run on a 5min Euro chart, not a lot of good action lately, but when it wakes up, I make a bit. They have now brought the avarage spread down to 1.2 pips the past week I noticed

I have also noticed that they do NOT have the NZDJPY pair, you can make it up though by buying the parts ( NZDUSD and USDJPY ) doing so, they will pay you $17.205 for a net long NZDJPY and FXCM will charge you only $14-00 on the oposing short, nice $3-20 there to be made while the oppertunity remains I recon, could you confirm this perhaps ? Just a pitty Oanda does not take credit cards, and that damn PayPal is probably the most expensive bunch on the net, PLUS being a South African, we are not allowed to receive money back via PayPal, only pay out

Anyhows, take care for now.

MECER

Thanks for your theories. Very interesting. I never thought of it that way before. In a less profound manner I just said to myself... hey, this will actually works! I've been trading for 7 months now and have been pounding away at carry trade ideas for the past month. Naturally, I overlooked this at first in pursuit of instant millions.

This is what I meant by double the spread. If you start a trade you are negative X amount of dollars because of the spread. Let's say it was -$200. In certain pairs I have demoed with high correlations the pair would not move more then -600 or + 400. You have to figure a profitable deviation as possible drawdown, since we don't know which way the pair will deviate. Hopefully, in our favor. So I believe you had it correct when you mentioned UPL. So far, the multiples of the spread a pair deviates is a good indicator of how much leverage to use. Certain pairs require more or less margin, and it's not safe to judge leveraging based on a percentage of account or number of lots in these cases.

Previously, I found the correlation for "Spider" on the AUDNZD vs the NZDJPY, but I believe I might have erred. I realized that pair's data was not collected on the same day, so I will recalculate it soon.

GBPJPY moved 250 PIPS today...after the rate hike in BOE..Its average range is more than 150 and more often it croses the 200 Mark,

Hope you guys caught the PIPs, too bad after a long party on the weekend, i woke up late and went live in US seesion

Hoping GBPJPY after the downward move, would jump up and cross 0.45 ish in the coming weeks.

gxxr, I'm sure the formula below is wonderful, but it does not allow anyone but math experts the ability to actually profit from it.

Are you able/willing to explain how to turn a math forumla, such as what you have below, into a useable trading system that those who are not math experts can demo and provide results on?

I'm sure for you the formula is worth billions, but for me (a total math novice) it is not worth anything.

I have noticed several people on this forum (not speaking of you!) who like to say things like, "see, all you have to do is hedge 7 main pairs, extrapolate the difference in interest, combine daily swap times 1.087490 percent, add spread differential times number of pairs traded, take daily ATR and double it divided by 6, and you have the perfect trading system. See what I mean? Simple!"

And while everyone thinks they are a genious (which is probably what they are after) it actually benefits nobody.

Are you able to expound on the formula a little in order to help us grasp the concept and apply it?

Wow, I noticed this is the last post in this thread (before mine today) and it was right before the huge world sell-off (1600 pips in Gbp/Jpy). Possibly that blew holes in everyone's systems here, as there are no more posts after that.

for the lover of nzd/jpy am also on buy position for 80 pips target and SL 38 PIPS

you still have chance to buy nzd/jpy for 65 pips up

my nzd/jpy open position doesn't have any problem with NFP news SL and TP is set ready , no panicking .

time to lockup profit of nzd/jpy

mixup , it was mistake i wanted to post nzd/jpy