How can I get $4m cheaply?

jls483

Active member
173 0
Just a short note to say that the last couple of posts were written before I had the replies that appear immediately before it.

Thanks to the replies I have now decided that what I was proposing will not work. Which means there is no harm in sharing what I was investigating:

When you take a spreadbet on cable they give you a pound for every .0001 change. This is not quite the same as buying dollars and then changing them back and it was this difference I was thinking about arbitraging.

For example if GBPUSD is at 1.5, imagine that I bought one spreadbet and at the same time exchanged £15,000 into $22,500. If the exchange rate fell to 1.0 then the spreadbet would lose £5,000, but the hard cash would be worth £22,500 - a gain of £7,500 and I would have a net profit of £2,500.

If cable had risen to 2.0 then my spreadbet would have made £5,000 and my hard cash would be worth £11,250 - an overall profit of £1,250.

The secret to success regardless of the movement to cable is to exchange in hard cash exactly the same amount as the notional value of the spreadbet.

Obviously I wouldn't get rich very quickly if I was waiting for cable to rise to 2.0 or fall to 1.0 so with a bit of maths and a spreadsheet I calculated the following:

cable £ $ contracts
1.6013 2,497,999 4,000,000 156
1.5962 2,505,993 4,000,000 157
1.5911 2,513,961 4,000,000 158
1.5861 2,521,904 4,000,000 159
1.5811 2,529,822 4,000,000 160

all I had to do was buy $4m and take out the appropriate number of spreadbet contracts. Then whenever the exchange rate hit one of the values on the left, buy or sell a spreadbet contract to balance things up.

To save you doing the maths my overall balance would increase by £25 whenever there was a .005 change in the exchange rate. This happens on average 2.75 times a day and so the scheme would bring in on average £68.75 a day.

You could also add to this the fact that the spreadbet company will pay you for being long in GBPUSD, which for 158 contracts is about £94.80 so the only challenge is to find out where one can buy $4m dollars for less than £150 a day, hopefully a lot less.

As I have now found that is basically impossible and the scheme is a non-starter - so it is back to my existing scheme "Suicide Trading" - until the next idea.
 

Trader333

Moderator
8,601 931
With IB you can open an account in GBP and then convert it all to USD if you so wished. I have half my account in USD and half in GBP but my base currency is GBP. The balance of my account does get affected daily by the £/$ exchange rate. If the £ goes up my buying power for Pattern Day Trading increases but if the £ goes down I end up with more GBP in my base currency. I have done this to halve the effect of exchange rates which it has so far done.

So there is no need to open an account in USD

Cheers


Paul
 

jls483

Active member
173 0
A small summary of the scheme if it was of interest to anyone:

£2.5m of notional GBPUSD spreadbets and £2.5m of dollars can produce a "guaranteed positive" return of approximately £17,188 a year.

With deal4free both the spreadbet and the real exchange would have a margin of about £25k and if you add in a little float you will need about £75k to get your return of £17k - which gives a return of about 22% a year.

This would be the exact return if the long and short positions were financed at exactly the same rate, however the long position is rate+2.5% and the short position is rate-1.5% on the full £2.5m. This works out as a 4% of £2.5m which is £100k a year and a net loss of 83k a year and is why my "Millionaire IV" scheme has been assigned to the scrap heap.

John.
 

ColinRiche

Well-known member
284 3
What about if you bought a quarterly bet with cmc with a 10 tick spread and sold the Rolling Cash with a 5 tick spread

If my figures are correct at £167 a tick each

You would pay no financing on the Long position just the extra in the spread for cost of carry.

And you would recieve overnight financing for the Short Position

How does that equate ?
 

Trader333

Moderator
8,601 931
Isnt what you are attempting effectively arbitraging ? and if so how long do you think D4F will permit it before implementing something that prevents it. Particularly in view of posting it on a public board ?

If not then I aplogise but if you had found something that worked I wouldnt be making it quite so public.


Paul
 

jls483

Active member
173 0
Colin,

What you suggest is a different kettle of fish entirely.

I was looking to arbitrage the small difference in the returns of forex spreadbets and real forex transactions. Although the differences are real, they are very small and easily outweighed by the cost of financing the positions on margin (and if you don't do it on margin then the returns are tiny - 2%).

What you are suggesting is the old "short the rolling cash and go long on the quarterly". I'm fairly sure that there isn't any hidden value between these instruments and one would just lose out to the spread in the long run. It is also a little harder to do the maths to work out if it would work or not.

John.
 

jls483

Active member
173 0
Trader333.

You are exactly right it is arbitraging and one of the reasons for looking to an alternative to deal4free for the real forex transaction is to have kept it a secret. Obviously I wouldn't have gone public if it was a goer.

John.
 

ColinRiche

Well-known member
284 3
I havent done the math but i believe there is a flaw in that plan somewhere - doesnt the quarterly bet suffer from decay ?

Perhaps someone out-there can enlighten us as to why this doesnt work.
 

jls483

Active member
173 0
Colin,

Which plan do you think there is a flaw in? My plan for arbitraging the rolling cash against the real forex transaction or your plan to sell the quarterly and buy the rolling cash and hope that the income from financing of the rolling cash outweighs the decay in the quarterly price and spread losses.

John.
 

ColinRiche

Well-known member
284 3
my one John,

and its buy quarterly sell rolling

is there a decay - i dont know - i dont trade contracts

sometimes i wish i did when a trade goes against me and i'm in it for some time long paying the interest eash day
 

jls483

Active member
173 0
Sounds like neither of us too confident in your plan - and I've already admitted my plan is non-starter so time to the end the thread.

BTW. With GBPUSD you get paid for being long and have to pay for being short. This is because the uk base rate is higher than the US base rate.

John.
 
 
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