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Forex Spread Arbitrage

  • #21
  • Edited 7:15am Sep 24, 2008 6:54am | Edited 7:15am
There is a correction my wealth has improved by US$ 10 instead of US$ 100


Now my Equity has improved from US$ 687.88 to US$ 726 with 6 transaction closed
  • #22
  • Sep 24, 2008 7:08am Sep 24, 2008 7:08am
I just started this simulation, so we will see if this system is profitable.

http://img515.imageshack.us/img515/5119/qqqqqqqqnf1.gif
  • #23
  • Sep 24, 2008 7:23am Sep 24, 2008 7:23am
Quoting harigp
Before starting the Arbritage System in my Demo Account

My Equity Was $ 687.88

Since I dont have to Account I used the same broker I carried out the following

Buy GBP/US$ Sell EUR/US$ ( Broker 1 ) In my case the same broker

Sell GBP/us$ Buy EUR/US$ ( Broker 2) In my case the same broker

After ten minutes I have seen Buy GBP/us$ ( Broker 1) and Buy EUR/US$
( Broker 2) in profit and booked both of them and re entered the same
buy of the two currency pairs with broker 1 and 2

My Wealth has improved on an overall basis ( broker1 and Broker 2)
by $ 787.88
That's not the way he described it.
You closed out your two buys, which were in profit.
He said to close out the "spread" that was in profit.
That would be either the "Buy GU Sell EU" or the "Buy EU Sell GU". After closing it out, immediately reopen it.
  • #24
  • Sep 24, 2008 7:26am Sep 24, 2008 7:26am
Quoting Lucas
Hello all,
forgive me my bad English because I am Belgian and speaks French.
I think that this method can be interesting, but like said BILLBSS I think that if everything is bought at the same time, nothing happens and we lose the spread. But I think that if we take S1 at a time, then waiting a few hours, for example 2 hours or 4 hours, we can see things moving. I begin demo today to see the result.
So long, Luc
You can wait and see how the pairs are moving, without ever opening the spread to begin with.
The spreads do nothing but cost you the broker's spread.
They are dead even- when one goes up, the other goes down, the same amount.
  • #25
  • Sep 24, 2008 7:29am Sep 24, 2008 7:29am
Quoting Rabid
Hrm, you sure? LOL. I thought he was closing out his profitable trade and then waiting for the other to be profitable, then closing the 2nd trade. Then restarting both.

If he's just re-opening the profitable side again.. .what's the point of any of this?

So what happens if the set moves strongly in one direction? You close out the profitable one and let the unprofitable one run? So uhm, what happens if the unprofitable one is closed and hits your account? Or if the pair then reverses and consolidates? You take the other side of the hedge, but now neither of your trades are profitable because the loser hasn't gained enough to be profitable?

No SL hedges work when pairs consolidate, and the EURGBP has been in consolidation for a little bit, but if it ever breaks out and moves in a trend you'll eventually blow up. No loss can run forever in a leveraged environment.

Yep, I'm sure that's what he wrote.

Quote
Step 5 Know when to close your profitable spread. There are many ways to do this, and I have found the way that suits me
best after months of trial and error. The best way to describe my approach to taking profits is simple...I get up each morning before 10am Central Time and check both of my accounts. I close the spread that is making money, whatever the profit happens to be, and reopen the spread just as it was before. I check my "losing" spread, make notes , and LEAVE IT
ALONE....it is only a paper loss right now, and eventually will become profitable.

It accomplishes nothing except feed the broker the amount of the spread each time you open one.
  • #26
  • Sep 24, 2008 10:30am Sep 24, 2008 10:30am
It accomplishes nothing except feed the broker the amount of the spread each time you open one.

Yes that's right, it is because we do not have to cut the position if it is under the cost of the spread. At this moment GBP-USD=3.2 & EUR-USD 2.3 so dont cut under a benefict of 5.5 minimum, (3.2+2.3=5.5).
For the moment there is no big move, so we have to wait...
  • #27
  • Edited 11:18am Sep 24, 2008 11:04am | Edited 11:18am
Quoting Lucas
It accomplishes nothing except feed the broker the amount of the spread each time you open one.

Yes that's right, it is because we do not have to cut the position if it is under the cost of the spread. At this moment GBP-USD=3.2 & EUR-USD 2.3 so dont cut under a benefict of 5.5 minimum, (3.2+2.3=5.5).
For the moment there is no big move, so we have to wait...
It makes no difference whether you wait or don't wait.

I'll make one more stab at it.

Lets say the spread on GU = 4 and EU = 2.

That totals 6 pips.

Open a Buy GU and a Sell EU.
Also a Sell GU and a Buy EU.

Look at your "equity" column. That's the only thing that matters. That shows exactly how much your account is worth.

As soon as you open your two spreads, your equity will go down 12 pips.
It will stay that way until you do something else. It doesn't matter what the spreads do, as they will offset each other.

Now when one of the spreads is in profit, close it out and immediately open another of the same.

Now look at your equity. It will have declined another 6 pips.
It will be -18 from where it was before opening the initial spreads.

Every time you close a spread and open it back up, you'll lose another 6 pips.

You will never make a profit. You will lose 12 pips the first day and another 6 pips everytime you close and open one of the spreads.


PS- You will also see a change in equity due to SWAPS. It will be a negative change.
  • #28
  • Sep 24, 2008 11:33am Sep 24, 2008 11:33am
Man oh man, threads like these really make wish I was an FX broker..
  • #29
  • Sep 24, 2008 11:37am Sep 24, 2008 11:37am
You know why you've been making money? Because the EURGBP is rangebound now. When the range breaks and the pair starts trending, which it will eventually do, you're screwed.
  • #30
  • Sep 24, 2008 11:39am Sep 24, 2008 11:39am
I think that this process of trading need big moves, to create a décoreletion or recoleration. We will see, now i just take look on my demo, i let it go.
If there is not hope, we will let it down and dream at something other.
  • #31
  • Sep 24, 2008 3:07pm Sep 24, 2008 3:07pm
To all the people who are confuse about this system, please look up "ARBITAGE" and understand the meaning of this term. Arbitage is the act of taking advantage of inefficiency in the market.

Let me give an example of arbitage in the stock market and how it works. Let say the bid (sell)/ask (buy) for Microsoft is $99.75/$100.00 on the New York Stock Exchange, and the bid (sell)/ask (buy) is $99.50/$99.625 on the Toronto Stock Exchange. We now have an inefficiency in the 2 markets. You could buy all day long on the TSE and sell on the NSE Microsoft stock and make $0.125 per share. Just pay the TSE broker, take delivery of the stock certificates and deliver them to the NSE broker and pick up your check. Deposit check in your bank to cover the check you wrote to the TSE broker and the difference will grow your bank balance.

How does this apply to forex you ask. In a perfect world selling G/U and buying E/U would be the same as selling G/E. In the real world, it's not the same, the 2 pairs have high correlation, not 100% correlation. The amount of correlation is also not constant, hence this is where arbitage comes in.
Optical's system trys to take advantage of that. As the correlation between G/U and E/U changes, the "spread" as he calls it changes so that one side (long or short) will be profitable. The system locks in this profit by closing that "spread" and immediately open a new position. The correlation tend to go back to the median between GBP and EUR and hence the expectation is that the losing "spread' will eventually BE or profitable

I hope this help some people to understand the system.

AND SELLING G/U AND BUYING E/U IS NOT THE SAME AS SELIING G/E...in a perfect world, yes. In the real world , no.
  • #32
  • Sep 24, 2008 3:21pm Sep 24, 2008 3:21pm
Quoting fxtrader2k7
To all the people who are confuse about this system, please look up "ARBITAGE" and understand the meaning of this term. Arbitage is the act of taking advantage of inefficiency in the market.

Let me give an example of arbitage in the stock market and how it works. Let say the bid (sell)/ask (buy) for Microsoft is $99.75/$100.00 on the New York Stock Exchange, and the bid (sell)/ask (buy) is $99.50/$99.625 on the Toronto Stock Exchange. We now have an inefficiency in the 2 markets. You could buy all day long on the TSE and sell on the NSE Microsoft stock and make $0.125 per share. Just pay the TSE broker, take delivery of the stock certificates and deliver them to the NSE broker and pick up your check. Deposit check in your bank to cover the check you wrote to the TSE broker and the difference will grow your bank balance.

How does this apply to forex you ask. In a perfect world selling G/U and buying E/U would be the same as selling G/E. In the real world, it's not the same, the 2 pairs have high correlation, not 100% correlation. The amount of correlation is also not constant, hence this is where arbitage comes in.
Optical's system trys to take advantage of that. As the correlation between G/U and E/U changes, the "spread" as he calls it changes so that one side (long or short) will be profitable. The system locks in this profit by closing that "spread" and immediately open a new position. The correlation tend to go back to the median between GBP and EUR and hence the expectation is that the losing "spread' will eventually BE or profitable

I hope this help some people to understand the system.

AND SELLING G/U AND BUYING E/U IS NOT THE SAME AS SELIING G/E...in a perfect world, yes. In the real world , no.
What optical proposed has absolutely nothing to do with arbitrage.

It has nothing to do with correlation.

He is taking the opposite sides of the exact same currencies.

The Long G/U - Short E/U
will totally offset, pip for pip, the Short G/U - Long E/U.

Look at it:
Short G/U
Long G/U

Short E/U
Long E/U
  • #33
  • Sep 24, 2008 8:54pm Sep 24, 2008 8:54pm
The biggest concern here is "Once I close a spread that is profitable, what do I do next?"

-This is one of my biggest questions...perhaps an example would be useful here: Say you have a spread that is
profitable...you want to close it and take your pips. Let us say that your spread in this case is Long the GBP/USD and Short
the EUR/USD - simply close profitable pair, take your profits, and then reopen the spread. By reopen I mean go Long the GBP/USD
and Short the EUR/USD, whatever the prices may be. The idea is to always be in the market, and to always have spreads in
seperate accounts that are the complete opposite of one another.



Note that:
the profit you take should be greater then your overall spread cost
Actually this system work best when market moving side way
where your losing position will eventually bounce back.


Disclaimer :
This system is not perfect and Risks involved

please discuss whether anyone has tried my method
please share here
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  • #34
  • Sep 24, 2008 9:30pm Sep 24, 2008 9:30pm
sorry if this was mentioned, but how many pips should either side be in profit before you consider closing it out?
  • #35
  • Sep 25, 2008 3:07am Sep 25, 2008 3:07am
opps......just saw in first post to close at 15 pips.
  • #36
  • Sep 25, 2008 3:15am Sep 25, 2008 3:15am
I am in test from yesterday with 2-S1 and 2 S2. This morning 2 S2 was at + 27$ and +20$. I cut and replaced. But the capital is sinking despite these profits. The rest hedge as a hedge other, it is less likely but nothing is certain. For me the system does not work. Taking something else, we will eventually find. Courage to all.

Je suis en démo depuis hier avec 2 positions S1 et 2 S2. Ce matin 2 S1 étaient à + 27 $ et + 20 $. J'ai coupé et remplacé. Mais le capital s'enfonce malgré ces deux profits. Ce hedge rest un hedge comme d'autres, on risque moins mais on est certain de rien. Pour moi le système ne fonctionne pas. Passons à autre chose, nous finirons par trouver. Courage à tous.
  • #37
  • Sep 25, 2008 5:22am Sep 25, 2008 5:22am
I just closed my s2 for 10 pip profit but my s1 is 40 pip minus

The contract started before yesterday us session
  • #38
  • Sep 25, 2008 6:40am Sep 25, 2008 6:40am
I feel like maby Ive heard of this trading idea before.
Living the adventure in my head.
  • #39
  • Sep 28, 2008 2:03pm Sep 28, 2008 2:03pm
Has anyone tried this method over a long period and if so what was the largest amount of pips one of the spreads went negative and did it eventually turn back to become positive?


AW
  • #40
  • Sep 30, 2008 4:48am Sep 30, 2008 4:48am
I once opend two interest positiv EUR/USD and USD/CHF positons (both LONG) just to collect swap every night. You're hedged this way too. My biggest floating loss was 30 pips (over months) on 1 Lot EURO 1.5 Lots Swissy = 2.5 Lots.

This type of trading will never be profitable if you do the math.
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