Spot Forex Spread/Hedge

[hermittrader01]

Hello,

I am wondering anyone here care to discuss more about spot forex spread/hedge strategies.

Currently, I am looking at 3 pairs, GBP/USD, EUR/USD and USD/CHF. This 3 pairs has a correlation of more than 0.9, which made it good for pairs trading.

However, it is important to take not is spot forex, 1 pip of USD/CHF is around USD8.00 while GBP/USD and EUR/USD is USD10.00. The other factor to take into consideration is the swaps. Also, the movement (range) of GBP/USD is usually about 20-30% more than EUR/USD and USD/CHF.

It would be glad to hear from forumers who have done it and still doing it. Also, discussion is most welcome.

By the way, any other forums made to discuss spread trading specifically beside t2w?

I have attached a trade history, this is a demo account for discussion purpose

Thank you,

Regards,
HT
HT BLOG

 

[hermittrader01]

I have attached another updated demo statement and the open position statement

all these trades were entered at random, there wasnt any set up used.

Regards,
HT
HT BLOG

 

[xjun]

hi hermit, do you any live fx account currently? which brokers you currently trade or spreadbet.

 

[hermittrader01]

hi xjun

i have live account with mgforex, unfortunately, i have some problems doing spread trading with them because swaps and the ability to long/short one pair at the same time. the statment for illustration purpose are from ibfx, as they offered fair swaps and the ability to long/short one pair at the same time.

i am not too sure, but i dun think spread betting is the same as spread trading.

do you have any experience in spread trading in fx? care to share with us briefly on that?

Regards,
HT
HT BLOG

 

[ahfei]

hermit,

I think in US, for spot forex they call fxtrading. In UK, they have financial spread betting ( a type of gambling) and fx trading. Outside of UK, people seldom refer to spot forex trading as spead trading I think. Spread trading usually related to futures contract in commodity or securities market.

 

[hermittrader01]

hi ahfei

spread trading is basically a long short strategy used by many traders, it is a common strategy used in the financial market, be it derivatives or securities. while most finaical books taught spread trading in futures, commodities, securities and options, the same technique can be applied to fx spot, which is the purpose of this topic for discussion.

spread betting basically is a bet of directional trade.

Regards,
HT
HT BLOG

 

[peto]

I have attached another updated demo statement and the open position statement

all these trades were entered at random, there wasnt any set up used.

Regards,
HT
HT BLOG

Sorry ht I know nothing of spread trading, but could get interested. Please would you explain the meaning of the 'swap' column in your results.
You say that you have trouble getting the "ability to long/short one pair at the same time". To what purpose?
To what purpose did you enter trades at random without a set-up? Any profit would surely be coincidental, in fact with dealing costs a loss would have been a more likely outcome. Or is it that a net-zero outcome would prove the efficiency of your hedges, and the profit-making strategy comes later?
pete

 

[hermittrader01]

Sorry ht I know nothing of spread trading, but could get interested. Please would you explain the meaning of the 'swap' column in your results.
You say that you have trouble getting the "ability to long/short one pair at the same time". To what purpose?
To what purpose did you enter trades at random without a set-up? Any profit would surely be coincidental, in fact with dealing costs a loss would have been a more likely outcome. Or is it that a net-zero outcome would prove the efficiency of your hedges, and the profit-making strategy comes later?
pete

spread trading simply means the selling and buying of the same or different financial products. it profits mainly from the spread widening and narrowing. a good site will be joe ross's spread-trading site.

swaps are simply the cost of carry for the currencies pair. its either receive interest or pay interest depending whether you long or short

at the moment, not all brokers accept long short of the same currecies, but there are more brokers allowing that. having a long short in spread could mean 2 hedge (ie. buy eur/usd, sell gbp/usd and sell eur/usd, sell usd/chf)

the trades entered at random simply a test of the viablity of such hedge strategy. if look into spread and some setup, whether the returns will be significantly better.

Regards,
HT
HT BLOG

 

[ahfei]

at the moment, not all brokers accept long short of the same currecies, but there are more brokers allowing that. having a long short in spread could mean 2 hedge (ie. buy eur/usd, sell gbp/usd and sell eur/usd, sell usd/chf)

the trades entered at random simply a test of the viablity of such hedge strategy. if look into spread and some setup, whether the returns will be significantly better.

Regards,
HT
HT BLOG

Buy EUR/USD, Sell GBP/USD, you can simply buy EUR/GBP instead. It is the same. So I do not think this is spread trading.

 

[peto]

swaps are simply the cost of carry for the currencies pair. its either receive interest or pay interest depending whether you long or short
HT BLOG

Thanks for the explanation.

having a long short in spread could mean 2 hedge (ie. buy eur/usd, sell gbp/usd and sell eur/usd, sell usd/chf)

With these pairs your eur/usd exposure is cancelled out (assuming the same size). So you will get the same effect with a 'sell gbp/usd, sell usd/chf' but save something on transactional costs. If your first hedge is already running when you initiate the 2nd then simply sell eur/usd to close out that side of the hedge, then sell usd/chf. If it helps your accounting records you can pretend you are both long and short in the same pair, but as far as your broker is concerned he will see a flat position and be happy!

the trades entered at random simply a test of the viability of such hedge strategy. if look into spread and some setup, whether the returns will be significantly better.

I see. So a near-zero-profit would prove your hedge strategy works. Consistent profits at this (random entry) stage of your testing would be as unwelcome as consistent losses, as both would show that your hedges aren't working. Obviously you have a lot more testing to do before any sort of statistical significance can be placed on your results.
pete

 

[hermittrader01]

Buy EUR/USD, Sell GBP/USD, you can simply buy EUR/GBP instead. It is the same. So I do not think this is spread trading.

it is not the same.

With these pairs your eur/usd exposure is cancelled out (assuming the same size). So you will get the same effect with a 'sell gbp/usd, sell usd/chf' but save something on transactional costs. If your first hedge is already running when you initiate the 2nd then simply sell eur/usd to close out that side of the hedge, then sell usd/chf. If it helps your accounting records you can pretend you are both long and short in the same pair, but as far as your broker is concerned he will see a flat position and be happy!

there is nothing wrong with that on what you have said

but let's say you have a hedge buy eur/usd, sell gbp/usd first, and the second hedge comes in sell eur/usd, sell usd/chf. ideally we can just square off the eur/usd position, but it would be difficult to visualise how is the hedge performance, if you have to close one hedge first instead of two hedge together.

Regards,
HT
HT BLOG

 

[hermittrader01]

this is an update of the hedge trading. almost 1.3k so far based on 50k, using almost 20% of equity for margin (8 pair, 4 hedges). 2.6% return. will continue to monitor

Regards,
HT
HT BLOG

 

[hermittrader01]

Buy EUR/USD, Sell GBP/USD, you can simply buy EUR/GBP instead. It is the same. So I do not think this is spread trading.

this is just a sample trade to show that the result is not the same. buy eur/gbp and a spread trade buy eur/usd, sell gbp/usd will not give u the same result.

Regards,
HT
HT BLOG

 

[ahfei]

I think if you long 0.147 EUR/USD and short GBP/USD at 0.10lot, the result will be exactly the same with long 0.147 EUR/GBP. But from the figure you posted, the result will be different as you put more weight on GBP.

 

[hermittrader01]

I think if you long 0.147 EUR/USD and short GBP/USD at 0.10lot, the result will be exactly the same with long 0.147 EUR/GBP. But from the figure you posted, the result will be different as you put more weight on GBP.

pardon me... you were the one who said buy one eur/usd and sell one gbp/usd can simply buy eur/gbp. it is the same as u mentioned in ur earlier post.

 

[hermittrader01]

an update of the forex hedge. i have attached the current open position for any interested parties

Regards,
HT
HT BLOG

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