I'm trying to learn how 3 currencies that are related between them work together in forex. I made some simple calculations as an example, and although the results seem to be okay on paper, it doesn't reflect on the markets as I thought. This is my example:
I'm working with 3 related pairs:
I'm working with 3 related pairs:
- EURUSD with a price of 1.13486
- EURGBP with a price of 0.71442
- GBPUSD with a price of 1.58744
Now suppose I have the following trade:
- Trade 1: BUY 0.07 EURUSD, which means BUY 7000 EUR and SELL 7944.02 USD
I want to decompose that trade in two different trades:
- Trade 2: BUY 0.07 EURGBP, which means BUY 7000 EUR and SELL 5000.94 GBP
- Trade 3: BUY 0.05 GBPUSD, which means BUY 5000 GBP and SELL 7937.20 USD
As you see the combined overall outcome of trades 2 and 3 should be almost exactly the same as the outcome of trade 1, because the GBP operations cancel each other (one buys, the other sells).
However, I have tried this live with a demo account, opening at the same time trades 1, 2, and 3, and the combined profit/loss of trades 2 and 3 does NOT equal the profit/loss of trade 1. I have also tested it with some historical values (1 hour candle) and again the results are not even close.
So can anybody guess what is wrong in my analysis?