Double currency risk

[ffsear]

I got hammered last night being Long both EUR/USD and GBP/USD. So double short the USD.

Do many of you who trade forex control you risk this way? I.e If your Long USD against one currency, are you happy to go Long against another? Or would you only consider going short if you saw an opportunity on the USD. Or avoid the USD all together seeing as you already have a position in it.

 

[scose-no-doubt]

I don't buy it. I understand the concept of triangulation in FX but for me, it's not that simple. Prolly won't matter to those of us who are trading relative buttons but consider this:

You're long EUR/USD and GBP/USD but EUR is weakening against a basket of currencies excluding USD and GBP is strengthening against the same... now what?

 

[Rambo35]

I try to trade all pairs independently, as mentioned EURUSD could go down while GBPUSD goes up depending on what is going on. I know this case may be rare, but it can happen. I have been long EURUSD and GBPUSD at the same time before, but I did not enter them them the same day. I would consider going short if there is an opportunity based on my strategy.

 

[D70]

I got hammered last night being Long both EUR/USD and GBP/USD. So double short the USD.

Do many of you who trade forex control you risk this way? I.e If your Long USD against one currency, are you happy to go Long against another? Or would you only consider going short if you saw an opportunity on the USD. Or avoid the USD all together seeing as you already have a position in it.

Hi ffsear,

On institutional level platforms your trades would be represented as follows:

eurusd spot 13113
gbpusd spot 15376

for ease of demonstration, you are £1/pt long both

Your position is :

eur +13,133
gbp +15,376
usd -28,509

So you are absolutely, unequivocally short dollars "twice".

Any professional level of position management breaks down the forex book by currencies, not by pairs.

And not meaning to suck eggs, but imagine you had the above on and you then sold 13133 "worth of eurgbp". You'd be flat eur but now "double" long gbp as well. And that position would be flattened by trading out of gbpusd (plus whatever residuals might be left).

Spot dealers often triangulate orders to not 'spike' a particular pair. So customer wants to buy $50m cable, they'll hit cable, then the crosses, eurgbp and gbpjpy, gbpchf to get the position on. Then flatten out the cross areas using more crosses. Anyway. I'm sure you get the giest.

Guys that say the positions are independent are just a little naive and dont understand the domain.

 

[NVP]

I got hammered last night being Long both EUR/USD and GBP/USD. So double short the USD.

Do many of you who trade forex control you risk this way? I.e If your Long USD against one currency, are you happy to go Long against another? Or would you only consider going short if you saw an opportunity on the USD. Or avoid the USD all together seeing as you already have a position in it.

Good Question......

If i'm equally bullish on GBP and Euro and think the USD is weakest currency option then I will trade them both....

I follow individual currency strengths closely in my trading

Then if you are wrong.... you are wrong ......end of story :smart:

N

 

[NVP]

Hi ffsear,

On institutional level platforms your trades would be represented as follows:

eurusd spot 13113
gbpusd spot 15376

for ease of demonstration, you are £1/pt long both

Your position is :

eur +13,133
gbp +15,376
usd -28,509

So you are absolutely, unequivocally long dollars "twice".

Any professional level of position management breaks down the forex book by currencies, not by pairs.

And not meaning to suck eggs, but imagine you had the above on and you then sold 13133 "worth of eurgbp". You'd be flat eur but now "double" long gbp as well. And that position would be flattened by trading out of gbpusd (plus whatever residuals might be left).

Spot dealers often triangulate orders to not 'spike' a particular pair. So customer wants to buy $50m cable, they'll hit cable, then the crosses, eurgbp and gbpjpy, gbpchf to get the position on. Then flatten out the cross areas using more crosses. Anyway. I'm sure you get the giest.

Guys that say the positions are independent are just a little naive and dont understand the domain.

AMEN

 

[scose-no-doubt]

Guys that say the positions are independent are just a little naive and dont understand the domain.

I agree. Who does this George Soros fella think he is?

Anyway I never said you wouldn't be short dollars twice I said that you're short dollars against two different sets if exposure. If you're doing a long EM macro trade and you want to short the US against India and south Africa a would you just swerve the US side and take a rupee rand synthetic? There's more exposure in rd than just the number you're buying at

 

[elisab]

For a proper money management, it’s always better to consider the correlations. For example, I would never trade long EurUsd and short UsdChf.

 

[D70]

For a proper money management, it’s always better to consider the correlations. For example, I would never trade long EurUsd and short UsdChf.

Are people born this stupid?

 

[scose-no-doubt]

Prolly crossed wires again. I'm talking longer term trades here where you're playing one set of macro variables against another. Not talking intraday/short term stuff where you've got non arb.

 

[Rambo35]

In the end it all comes down to what the trader prefers and feels comfortable with. There are plenty of approaches to successful trading. I did say I trade them independently, call me naive but unless you know the full story I would be more reserved with it. I think in the end it depends on if a trader accomplishes what they wish with their strategy and approach regardless if others agree or understand it, but hey that is my opinion.

 

[D70]

Ok Rambo and Scose,

I can see what you're saying and I think you're just answering your own questions and not ffsears so let me put it another way.

Instead of buying euros and selling dollars, buying sterling and selling dollars (as per my example).
This time you buy 1000 lloyds shares and sell 1000 rbs shares, you buy 1000 lloyds shares and sell 1000 barclays shares.

Do you still view your ownership of 2000 lloyds shares as two independent trades of 1000 shares?
If lloyds share price went to 0 tomorrow. Would you still view your ownership of 2 blocks of 1000 shares as independent?

Seriously guys, you should know better.

I think retail forgets that they are doing two things, they are buying euros AND selling dollars. You are not just buying "eur/usd".

Whatever your "strategy" or "timeframe" isnt the question or the subject. We're talking about risk and risk management.

 

[tar]

Nothing wrong with being long Cable and EUR/USD at the same time as long as that's your objective , example : short the USD without betting heavily on the Pound or the Euro , so you split your position ...

 

[scose-no-doubt]

swat I'm getting at tar... only difference is that I think that type of play is only really relevant for longer term trades rather than the quick fire intra-day short term that's about on t2w stuff cos you're gonna pay extra spread for customising your exposure and you're fighting against ecn algo arb.

 

[Rambo35]

Ok Rambo and Scose,

I can see what you're saying and I think you're just answering your own questions and not ffsears so let me put it another way.

Instead of buying euros and selling dollars, buying sterling and selling dollars (as per my example).
This time you buy 1000 lloyds shares and sell 1000 rbs shares, you buy 1000 lloyds shares and sell 1000 barclays shares.

Do you still view your ownership of 2000 lloyds shares as two independent trades of 1000 shares?
If lloyds share price went to 0 tomorrow. Would you still view your ownership of 2 blocks of 1000 shares as independent?

Seriously guys, you should know better.

I think retail forgets that they are doing two things, they are buying euros AND selling dollars. You are not just buying "eur/usd".

Whatever your "strategy" or "timeframe" isnt the question or the subject. We're talking about risk and risk management.

The LLOY/RBS pair (let's call it that) would behave in a different way than the LLOY/BARC pair. As you said it comes down to risk management and as long as you remain within your risk management (for example 2% per trade or whatever you prefer) then in my opinion there is nothing wrong. Of course you are more exposed to LLOY (in your example), but if the individual trader accepts that I see nothing wrong with that.