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Help with Lot- range Calculations

  • #1
  • First Post: Sep 23, 2009 9:41am Sep 23, 2009 9:41am
Could some help me with a formula
I am trying to calculate to have a neutral hedge
Of eur/usd and usdchf using lot and range of open to close
Eur/usd 1lot =1
Usdchf 1lot = .96
Daily open to close ( not high to low) is
Euro usd- 70 pips and usdchf 58 pips difference 12 pips or %
I am looking for the formula on how much usdchf do I need taking in account the daily open/close range And the lot difference

thank you
  • #2
  • Sep 23, 2009 11:57am Sep 23, 2009 11:57am
Quoting toddanderson
Could some help me with a formula
I am trying to calculate to have a neutral hedge
Of eur/usd and usdchf using lot and range of open to close
Eur/usd 1lot =1
Usdchf 1lot = .96
Daily open to close ( not high to low) is
Euro usd- 70 pips and usdchf 58 pips difference 12 pips or %
I am looking for the formula on how much usdchf do I need taking in account the daily open/close range And the lot difference

thank you
If you want to go with $ amount then... 1 lot (100,000) of EUR/USD = $10/pip, 1 lot of USD/CHF is $9.78/pip. 70 pip of flactuation "worth" $700 for EUR/USD that you want to hedge with USD/CHF flactuation of $9.56x58=$566.08. Contract amount is CS in below formula:

.0001/1.023 x cs x 100,000 x 58 = $700
cs = (700 x 1.023 ) / ( .0001 x 100,000 x 58 ) = 1.2347

So basically you going to need 1.2347 of $100,000 contracts to cover $700, which is $123,470.

Why do you need all that anyways? If you completely hedge yourself like that you would probably come up with $0 profit/loss in a long run anyways, won't you?
  • #3
  • Edited 12:34pm Sep 23, 2009 12:13pm | Edited 12:34pm
Quoting toddanderson
Could some help me with a formula
I am trying to calculate to have a neutral hedge
Of eur/usd and usdchf using lot and range of open to close
Eur/usd 1lot =1
Usdchf 1lot = .96
Daily open to close ( not high to low) is
Euro usd- 70 pips and usdchf 58 pips difference 12 pips or %
I am looking for the formula on how much usdchf do I need taking in account the daily open/close range And the lot difference

thank you
Hi Tod.....

EURUSD(DAILY OPEN-DAILY CLOSE)= 70 PIPS
USDCHF(DAILY OPEN-DAILY CLOSE)= 58 PIPS

EU/UC (70/58) = 1,207 %

EURUSD 1lot = 1
USDCHF 1lot = 0.96 * 1,207 = 1,16 LOTS

Basicaly, if you bought 1 lot of EU and 1,18 lots of UC your hedge will be zeroed out!
EURUSD(DAILY OPEN-DAILY CLOSE)= 70 PIPS
USDCHF(DAILY OPEN-DAILY CLOSE)= 58 PIPS * 1,16 = TOTAL IS 67,3.......(close enough to 70)

The problem with this is that you dont know what pair is out of correlation, and wich one will correct itself later.....
if you added to wrong side you will get burned!

Regards
forexflash
  • #4
  • Sep 23, 2009 12:43pm Sep 23, 2009 12:43pm
Thank you flash, this helps a lot



Quoting FOREXflash
Hi Tod.....

EURUSD(DAILY OPEN-DAILY CLOSE)= 70 PIPS
USDCHF(DAILY OPEN-DAILY CLOSE)= 58 PIPS

EU/UC (70/58) = 1,207 %

EURUSD 1lot = 1
USDCHF 1lot = 0.96 * 1,207 = 1,16 LOTS

Basicaly, if you bought 1 lot of EU and 1,18 lots of UC your hedge will be zeroed out!
EURUSD(DAILY OPEN-DAILY CLOSE)= 70 PIPS
USDCHF(DAILY OPEN-DAILY CLOSE)= 58 PIPS * 1,16 = TOTAL IS 67,3.......(close enough to 70)

The problem with this is that you dont know what pair is out of correlation, and wich one will correct itself later.....
if you added...
  • #5
  • Sep 23, 2009 1:18pm Sep 23, 2009 1:18pm
Congrats on figuring out the hedge ratio. If this works perfectly, you will make absolutely no money.
  • #6
  • Last Post: Sep 23, 2009 2:11pm Sep 23, 2009 2:11pm
Quoting philmcgrew
Congrats on figuring out the hedge ratio. If this works perfectly, you will make absolutely no money.

LOL
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