Profitable hedging strategies?

hedging ... example ... are :

when some big firms consume lots of crude oil ... they want to buy an enormous amount ... but they want the price to be at the lowest rate ... for example they buy 10000000000 barrel ... but actually they dont pay the money one time ... they hedge the lowest price using hedge fund company ... now they keep paying a constant amount of money each year on the price that they hedged it on ... which is the lowest price ...

Please any one correct me if iam wrong

swap ... spread ................. what if i use an ECN account ... and swap free too ... did that solve the problem ... oh yes

I found another simple profitable hedging ... buy spot EUR/USD ... sell future EUR ... that would never be a lossing hand ...
and here you are paying one way swap ... assuming that your using a non free swap account ...

please correct me if iam wrong

http://i.imgur.com/g830W.jpg


Your first example doesn't make any sense (look up hedging out price risk,) and you clearly have no idea how a futures contract works or why a contract's front month expiry isn't the exact same price as spot (let alone back month contracts.)


Now, do I waste the next 20 minutes typing out all the 'corrections' you asked for? I ask since I'm not sure you'd actually benefit from it given how you've carried yourself thus far on the subject.

I'm not trying to pick on your or make fun of you.. I'm just saying.

no comment .......... < >

oh yes comment .... spot eur/usd and future eur .... hahaha ... check it out ... exact price ... i meant future eur of this month ... not last year ...

See? This is what I mean by not wasting my time. You won't benefit from anything I say since you're rather talk about what you don't understand (as if you understand it) vs being in a mindset where you might learn something new.

ok ok ... please correct me ... we are all here sharing and correcting each others ... please when you say that some thing here is wrong ... please advance your answer by mentioning why its wrong... not just saying its wrong and just move on ... ok

Be humble in this business, and always open to learning new things. Especially if you're not as well versed in a product as someone else might be.

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Firstly, on your 'barrels of hedging' example. A company who deals with oil (to continue to use your example terms) doesn't care about buying oil "cheap" since the price could go anywhere. If they locked in a price today for a brazillion barrels of oil (that's enough oil barrels to fit in Brazil ) then tomorrow the price could get cheaper and they'd look silly for dropping so much cash on something they don't need right away while they could have gotten it cheaper later on. So let's not think of it as "cheap" or trying to lock in "cheap" prices.

No no, companies will totally want to lock in prices, but it's because they are doing two very direct things: Hedging price risk (the risk of the price being different form what they expected, be that up or down.) and locking in their cost basis (knowing exactly what you are going to spend in the future is required for planning out how you're going to run your company and where you'll commit your capital.)

Again, hedging in this case is about making one thing known, and removing risk from your operation that doesn't directly contribute to your profitability. (A business major would kill me for explaining it like this, as I've totally just manhandled defining it, but this is probably the best way to look at it for the purposes of this forum and the subject matter.)

Notice something? The company isn't speculating on the price of oil, in fact, they are spending extra money to remove the oil's price risk from the equation of their bottom line at year's end. They are trying to make sure they are profitable despite whatever oil does in the market.

Where, as a speculator/trader, hedging with the same underlying security would be directly affect your ability to profit from a trade ...since you'd only be affecting your total exposure level, and you require oil to change in price if you want to profit.

So I said your example didn't make sense because a company wanting to lock in prices up front would be outlying capital to do so (turning cash into inventory,) or spending extra on premium if they were locking prices to be delivered in the future or trying to lock in a price range for the next given period of time (using various derivative products.) As their intentions aren't really to make money from speculation like us.

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As for the Spot vs Futures price differences:

So I didn't want to use prices from Friday's close, since the last print before the weekend gets messy, so instead I pulled up a snapshot of prices around 10am EST on the 12th (this past Wednesday,) to best illustrate:

http://i.imgur.com/xMpsu.png

Here we see 3 bid/ask spreads and depths. I've cascaded them when making this image to better fit them in the post without it stretching and resizing the image itself, so it doens't look like that on the platform, they are just partially overlapped.

We have spot EUR/USD on the left, the front month 6E contract in the center (also called the 'active' month,) and a contract for 6E that's for delivery in Dec of 2013 on the right.

Here's the kicker, the front month contract expires very soon, within a few days, and is about to roll over. This is why the middle spread is nearly a pip away from the spot spread, but check the difference again come rollover (few days from now) and you'll see the new front month contract will have a much greater difference (since it would expire in march of next year instead of in a few days.)

As the contract's expiry date approaches, the price generally gets closer to the spot price (since spot really is "on the spot" delivery, where as a future is 'in the future'.)

Notice how all three price spreads aren't the same? Notice the spread get wider a year out? Notice the price quoted is higher a year out?

In general, the cost for a back month contract (in my example Dec 2013,) and spot or the front month represents a premium that covers things like interest rates, some volatility, or in a physical commodity's case often the cost of warehousing the stuff over that time (so this difference can be more pronounced in futures contracts like metals or grains during periods of contango.) As the back month contract approaches the time it becomes the front month, the difference gets diminished til it is nearly in sync with spot (just moments before the contract expires and is delivered or settled.)

So you do end up paying for things like interest, only indirectly through the way price relates to getting the same underlying exposure in the front month or spot markets.

That aside, you'd also be spending extra on the cost of carry or financing charges as you hold these contracts. Since most brokers only ask that you put up a fraction of the total value of the contract (leverage) they still have to clear the contract itself and someone needs to foot the bill for the rest, so you often pay a small cost each day's end to cover the financing involved.

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So here you are, with a $125,000 EUR/USD short position and 1 contract long of 6EZ3, and let's assume you've somehow got a broker that doesn't charge anything else for a no-swap account (islamic accounts often charge extra commissions or fees for holding a positing past a number of days,) since you felt that was a way around this.

(Using the prices from my pic above)

You'd be short spot @1.30331
You'd be long 6EZ3 @ 1.3146 (100+ pip spread for the win!)

1 year passes, and the EURUSD went to the moon and back but stopped exactly where you bought it price wise.

You exit your short spot position ~1.30347 --> 1.6 pip loss
You exit your long 6EZ3 (which is the new front month a year later and has a spread that looks like the middle quote on my image) ~1.3034 --> 112 pip/tick loss

Plus you've paid a cost of carry of a few % of the margin in use on the futures account for the privilege of losing 113.6 pips in your "hedged" position over the last year.

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Now do you understand why I posted the cat picture?

Thanks for the replay ... but what if i short USD/JPY and long future yen ... I get now that this will not work on eur because its a direct pair ... what about indirect like yen ...

The cat picture is extremely funny....
Good cat advise,

At least I learned a new term today .. what is it? "nedging" or something like that.
Somewhat true... probably agreeing with Jack and others that in around forex forums
there is no serious "hedging" strategies proposed and all revolve around faulty non-sense un-profitable
spreads eating systems. Called hedging, baskets or others.

... and the answer, so far, to the title post is???
None posted yet.. as the main focus has been to advocate or trying to debunked "nedging"

J.

Same reasons why it won't work on EUR will be the same reasons why it won't work with YEN... it doesn't matter if the quote and base currencies are flipped around in the pair.

Think you need to re-read my post, has nothing to do with it being a "direct pair" or not.

I reckon a clue to you, but, I have tested this idea yet.

professor53 said he made 2 hedge trading EA:
1. martingale betting progress method is used in hedged size.
2. anti-martingale betting progress method is used.


Link is here:
http://www.myfxbook.com/community/pr...ng-ea/437256,1

www.Professor53.com

Cheers.

for TS, you should make your own research! cause I am sure , you'll find something that hedging can offer to you e.g stable, organize, medium fluctuation. and etc. and just like jeuro said, no one will gave their hardworks reaseach just to make some one else happy!


just my two cents

100% proved hedge strategy .... here is two weeks profits ...monthly average profit from last year i got around 8%....

good afternoon ... and if instead of using the name hedge, I use the name of order lock, ie instead of putting a stop, for example 20 pips, I would place an order latch (reverse order) 20 pips, they say this?
is what has worked? Someone here in f. factory uses it?
Kindly give your thoughts and ideas.
thanks in advance.
greetings,
jvbs

PS: sorry if my english is not good

they say this?
So may or may not be profitable?

jvbs

Does it really is true that one can be very profitable?
Is it really true that anyone who is being very profitable Hedge or doing something else not really want to share this form of trading?
I leave this question here, and it was good if someone leave here your opinion.

jvbs

One who has a 100% profitable strategy,,will never share ...,, may be but very difficult ..he/she can only post prove of that strategy ,, there are so many trader which are getting consistent profits and their strategies based on hedge or something like that ,,may be profits lilbit smaller then regular traders ..

there is nothing called 100% profitable system .even banks dont have such systems if they did we will hear about them making trillions

they even loss and we have a big crises now because they lost a lot .so 100% wining system is impossible .

you have wining percentage strategies with most higher percent is really hard to share but some share there strategies .

a lot did share them from where did we learned technical analysis ,price patterns ,Elliot wave theory .we have good indicators also like

RSI , ADX , MACD AND SO MANY .

so the bottom here that there are some one who can share there systems some does not it is as every thing else positive and negative

sides

all have a nice day

hedging strategies are some point of bases that we can sometimes rely on. But in many cases most of the time hedging is like double edge sword, quite dangerous to used, you may dead! or alive and most probably dead.. So in my studies about how to make profitable position in the market, apply all the indicators, study the fundamentals, and latest release of the particular currency and then decide. The only thing that can do 100% profitable is DON'T be too GREEDY. If you already gain NET profit then execute and look for another opportunity to trade again.