Genuine 100% Risk free* trading method for Spread betting

Hoggums

Senior member
Messages
2,176
Likes
878
This is a method that I don't trade, nor will I trade as the returns will be very poor if there are no large market moves - but this is a genuine method that could be used to make a completely risk free profit if you are expecting a fairly severe move in the currency market. It is only suitable for spread betters..

This is purely theoretical btw - I don't know anyone who has tried this. I'm ignoring buy/sell spread for this simple example.

I took a snapshot today of the Eur/Gbp rate at 8540.6 and the Gbp/Eur rate was 11708.6 as quoted by IG index

So - lets say you have 10K to invest - I'm going to risk most of it.

I'll go long Eur/Gbp at £27.00 per point @ 8540.6 and long of Gbp/Eur at £19.69 per point @ 11708.6 (I'll explain the maths later if you want). This will use up most of the margin in my account.

Lets say Eur/Gbp goes to 9500.0. That means Gbp/Eur will be at 10526.3

This gives me 959.4 pips profit on Eur/Gbp @ £27pp = £25903.80
And -1182.28 pips profit on Gbp/Eur @ £19.69 = £-23279.20
-- giving a total profit of £2624.62

Lets image the Eur/Gbp rate goes the other way to 7800. Gbp/Eur will be at 12820.5

This gives me -740.6 pips profit on Eur/Gbp @ £27pp = £-19,996.20
And 1111.9 pips profit on Gbp/Eur @ £19.69pp = £21893.56
-- giving a total profit of £1897.36


Obviously I am ignoring buy/sell spread - which should be minor. However you could not trade this method using dailies because of the nightly rollover cost which would probably be unequal and detrimental to the account over time. So you would have to trade this using quarterly futures contracts. I have not studied the effects using a decaying futures contract with this strategy.

So there you have it. Not strictly 100% - because if there was no market movement you'd lose money on spread costs - but about as close as you're ever gonna get!
 
It's a valid point, and as such led IG in the early 2000s to force all currency bets to be denominated in the second currency for a while. However, it's not only the spread but the mark up on the interest rates which would probably kill any profit, unless you saw a huge move in the course of one day. I suspect anyone trying this in size would get their account closed pretty quickly too.
 
This is a method that I don't trade, nor will I trade as the returns will be very poor if there are no large market moves - but this is a genuine method that could be used to make a completely risk free profit if you are expecting a fairly severe move in the currency market. It is only suitable for spread betters..

This is purely theoretical btw - I don't know anyone who has tried this. I'm ignoring buy/sell spread for this simple example.

I took a snapshot today of the Eur/Gbp rate at 8540.6 and the Gbp/Eur rate was 11708.6 as quoted by IG index

So - lets say you have 10K to invest - I'm going to risk most of it.

I'll go long Eur/Gbp at £27.00 per point @ 8540.6 and long of Gbp/Eur at £19.69 per point @ 11708.6 (I'll explain the maths later if you want). This will use up most of the margin in my account.

Lets say Eur/Gbp goes to 9500.0. That means Gbp/Eur will be at 10526.3

This gives me 959.4 pips profit on Eur/Gbp @ £27pp = £25903.80
And -1182.28 pips profit on Gbp/Eur @ £19.69 = £-23279.20
-- giving a total profit of £2624.62

Lets image the Eur/Gbp rate goes the other way to 7800. Gbp/Eur will be at 12820.5

This gives me -740.6 pips profit on Eur/Gbp @ £27pp = £-19,996.20
And 1111.9 pips profit on Gbp/Eur @ £19.69pp = £21893.56
-- giving a total profit of £1897.36


Obviously I am ignoring buy/sell spread - which should be minor. However you could not trade this method using dailies because of the nightly rollover cost which would probably be unequal and detrimental to the account over time. So you would have to trade this using quarterly futures contracts. I have not studied the effects using a decaying futures contract with this strategy.

So there you have it. Not strictly 100% - because if there was no market movement you'd lose money on spread costs - but about as close as you're ever gonna get!

I rather assumed it would be the same chart the other way up.....Could you just satisfy my curiosity as to why it is'nt. :confused: Sorry to be a pain if its obvious!!!!
Otherwise, thank you for your time!:smart:
 
A range of 0.8000 to 0.8500 would equal 500 pips. This is the same as, 1.2500 to 1.1764 which would equal, 736 pips.

Hope this helps. (Hope I'm right with where I'm going?).

Am I right in assume via DMA this doesn't work since the pip nominations are different. ie, EURGBP is valued in £ while GBPEUR is valued in €.

Phil.
 
A range of 0.8000 to 0.8500 would equal 500 pips. This is the same as, 1.2500 to 1.1764 which would equal, 736 pips.

Hope this helps. (Hope I'm right with where I'm going?).

Am I right in assume via DMA this doesn't work since the pip nominations are different. ie, EURGBP is valued in £ while GBPEUR is valued in €.

Phil.


No i'm still totally baffled.:(
 
It relies on the fact that a 100% gain in x is only a 50% drop in 1/x... Weight them equally so you effectively have the same amount invested in both.
 
Am I right in assume via DMA this doesn't work since the pip nominations are different. ie, EURGBP is valued in £ while GBPEUR is valued in €.

Essentially.

The problem is you will end up with more pounds/euros than you started with and will be richer at the exchange rate of when you put the trade on, but you will in fact have exactly the same amount of weighted currency.

So in theory even when spread betting you should not do this in a GBP pair if you are spread betting in pounds.

For related discussions on this, google "quanto"s...
 
Top