Stupid question....

[Cobrien]

On forex is it wrong to buy say the AUDJPY but also at the same time sell AUDUSD?

So buying but also selling the same base unit but different quoted unit.

Sorry if this is a stupid question.

Thanks

 

[10%Club]

Any benefits would depend on which way the USD/JPY is going but there is no smart way to make a sure profit like this...

 

[options-george]

On forex is it wrong to buy say the AUDJPY but also at the same time sell AUDUSD?

So buying but also selling the same base unit but different quoted unit.

Sorry if this is a stupid question.

Thanks

No it is not wrong to do that.

Though you need to understand by doing that you are, in substance (or "synthetically"), buying USDJPY (as 10%Club has already pointed out).

What you suggested, is in fact common practice for large market participants. They often open two trades in more liquid markets in order to create the synthetic position that they want. Thus, rather than buy GBPNZD, which is a rather volatile instrument and sometimes has thin liquidity, they instead buy GBPUSD and sell NZDUSD, both of which are very liquid instruments.

It would not be a bad idea for retail traders to also adopt this approach - though it makes more sense for trading higher timeframes.

 

[Oscar Reed]

On forex is it wrong to buy say the AUDJPY but also at the same time sell AUDUSD?

So buying but also selling the same base unit but different quoted unit.

Sorry if this is a stupid question.

Thanks

Nothing wrong with doing that.
Some times I buy the weak and sell the strong.
Then look for the relationship to close again.
Chart shows the current variance.
There would be some fundamental reason for the break down.

 

[tomorton]

Its not necessarily wrong. My watch list spreadsheet is indeed currently showing Short AUD/JPY and Long AUD/USD but this would be on only a short timescale, 1-3 days. Longer-term, I wouldn't be holding either but if I was holding one it wouldn't stop me going the opposite way on the other on a shorter timescale.

 

[BricksNPips]

i don't think that would be wrong at all. because you are looking at each pair as a relationship to each other. so for example, how strong is aud compared to usd...or how strong is aud compared to jpy. however, if aud is very strong (or it's counterparts were both weakening), it may be moving the same way in both pairs and then you wouldn't want to buy one and sell the other. this is my understanding of it anyway...

 

[timsk]

Am I imagining things, or have five members replied to the OP's question - all of whom appear to be in agreement? That's gotta be a first here on T2W!
;-)

 

[Forexmospherian]

Am I imagining things, or have five members replied to the OP's question - all of whom appear to be in agreement? That's gotta be a first here on T2W!
;-)

6 NOW ;-)

When I am short term intraday scalping FX - anything goes sometimes for just 10 or 30 mins - Any cross group - ie Euro crosses / Pound crosses / Yen crosses - all of them can go out of sync to each other at various times

Regards

Good Trading

F

 

[Rhody Trader]

I guess I'll be the first to disagree then.

It makes absolutely no sense to go long AUD/USD and short AUD/JPY at the same time. As has been noted, you're creating a synthetic short USD/JPY position. Just go short USD/JPY.

What you suggested, is in fact common practice for large market participants. They often open two trades in more liquid markets in order to create the synthetic position that they want....

It would not be a bad idea for retail traders to also adopt this approach - though it makes more sense for trading higher timeframes.

The reason large market participants do this sort of thing is so they minimize their own impact on prices. A retail trader is not going to move the market at all with their order. All a retail trader is therefore doing is incurring two spreads instead of one.

 

[tomorton]

Ah yes but I DO move markets - in the opposite direction to my own positions.

 

[Forexmospherian]

I guess I'll be the first to disagree then.

It makes absolutely no sense to go long AUD/USD and short AUD/JPY at the same time. As has been noted, you're creating a synthetic short USD/JPY position. Just go short USD/JPY.



The reason large market participants do this sort of thing is so they minimize their own impact on prices. A retail trader is not going to move the market at all with their order. All a retail trader is therefore doing is incurring two spreads instead of one.

Yes - but its possible to have 2 wins from 2 trades - far better than 1 win - even in theory twice the risk - and also in this particular case the AJ would move far better than UJ

I have often sold EU whilst buying EA and the EA move will be 8 out of 10 times larger than than the EU - but of course I am talking just intraday short term

Regards


F

 

[Rhody Trader]

Yes - but its possible to have 2 wins from 2 trades - far better than 1 win - even in theory twice the risk - and also in this particular case the AJ would move far better than UJ

Could just as easily have 2 losses from 2 trades - far worse than 1 loss, right?

And it's not twice the risk since the AUD long and short offset each other.

I have often sold EU whilst buying EA and the EA move will be 8 out of 10 times larger than than the EU - but of course I am talking just intraday short term

I think you're missing the mathematical point here. By going short EU and long EA you - assuming equal sized trades - you net out to long AU. If EA makes a move larger than EU then it means a comparable move in AU. It has to because of the triangular arbitrage. The only difference is you're paying 2 spreads instead of one, so your net return is lower by doing the synthetic than the straight position.

 

[mlawson71]

Nothing is stupid as long as you are seeing appropriate signals for a good entry point.

 

[Forexmospherian]

Could just as easily have 2 losses from 2 trades - far worse than 1 loss, right?

And it's not twice the risk since the AUD long and short offset each other.



I think you're missing the mathematical point here. By going short EU and long EA you - assuming equal sized trades - you net out to long AU. If EA makes a move larger than EU then it means a comparable move in AU. It has to because of the triangular arbitrage. The only difference is you're paying 2 spreads instead of one, so your net return is lower by doing the synthetic than the straight position.

Maybe its because your assumption's incorrect . ( highlighted)

Still have to disagree John and will have to give you an example

The EA can move in say approx 30 mins up to 3 times more than the EU - and similar or even in some case 5 + time more than the AU in my sessions of the 24 hr trading day

I notice this every day as a intraday trader - not just a scalper but trading for targets of 7 to 25+ pips ( ie not true scalping)

I am sure I can find one out from this week to give you a P& L on it

My spreads and costs on the EU will be approx. 1 pip - AU say 1.3 pips and EA between 2.3 and 3 pips in total

Ok - I can simultaneously scalp all 3 pairs - with 2 in opposite directions on one pair from a key time - and the moves can end up like this in say 20 mins - or what ever time they all stall.

EU might make a new move of say 9 to 15 pips

EA will move in same time 20 to 35+ pips

AU - might make 8 pips up 12 pips top ( less of a mover in European session )

The moves and spread costs result with the pair with the highest spread EA - still making me more money ( That's all we should be concerned with than the pips etc ) even if I pro rata the stake size - needing a larger stop of say 6 or 7 pips on the EA compared with the 3 pip - 4 pip stop size with the EU.

The fact the my win ratios over 20k live trades average around 70% - then although yes - I can still have a bad period of 7 losses in a row - I expect to have more winning trades every day than losing trades.

I would agree with you if the ratio of the EA moves to the EU or EA were a lot closer in size - but they are out of sync to such a degree that I don't even know why experienced retail intraday traders even bother majoring on the EU.

There will always be exceptions to the norm - especially in trading - I don't normally intraday trade the AJ - but I am sure its a far more cost effective pair to trade than the UJ most of the time

Regards

F

 

[counter_violent]

Could just as easily have 2 losses from 2 trades - far worse than 1 loss, right?

And it's not twice the risk since the AUD long and short offset each other.



I think you're missing the mathematical point here. By going short EU and long EA you - assuming equal sized trades - you net out to long AU. If EA makes a move larger than EU then it means a comparable move in AU. It has to because of the triangular arbitrage. The only difference is you're paying 2 spreads instead of one, so your net return is lower by doing the synthetic than the straight position.

Be careful John, he has a nasty habit of dragging people down to his level, then subjecting them to his ignorance

 

[metrader]

On forex is it wrong to buy say the AUDJPY but also at the same time sell AUDUSD?

So buying but also selling the same base unit but different quoted unit.

Sorry if this is a stupid question.

Thanks

I would buy usdjpy instead – it's similar, but you pay only one spread and it's simpler/easier to do imo

 

[options-george]

The only difference is you're paying 2 spreads instead of one, so your net return is lower by doing the synthetic than the straight position.

Thanks for providing more clarity on this - much appreciated.

Just fyi, with my broker paying NZDUSD and GBPUSD spreads+comm is still going to be less than paying one spread+comm on GBPNZD. I need to double check the figures on that when I am back at the office on Monday, but if it's not less than it's probably about the same, certainly not double.

Though I was only thinking abut this specific example. Not sure how it would work with others, and it would make sense that you are correct about the higher of doing two trades rather one!!

 

[tomorton]

In swing trading it makes total sense to be e.g. long a pair in a long-established uptrend with a deep stop-loss and then also short it through a shorter-term retracement. It doesn't come out of my signals spreadsheet very often, but it does happen and I take them. Much more common is when the long-term signal says no trade but I have a short-term trade signal.

As above, why would trades on different timescales be same size?

 

[Rhody Trader]

Just fyi, with my broker paying NZDUSD and GBPUSD spreads+comm is still going to be less than paying one spread+comm on GBPNZD. I need to double check the figures on that when I am back at the office on Monday, but if it's not less than it's probably about the same, certainly not double.

I wouldn't expect NZD/USD + GBP/USD to be double the spread of GBP/NZD. Nor would I in most cases like this. I'd just expect the two combined to be higher than the one.

That said, if you can do a synthetic position for cheaper than doing the outright, then it totally makes sense to do it!

 

[Rhody Trader]

In swing trading it makes total sense to be e.g. long a pair in a long-established uptrend with a deep stop-loss and then also short it through a shorter-term retracement.

While I understand the premise, I'm not sure I'd go so far as to say "it makes total sense" seeing as what you're effectively doing is closing out what I'm assuming is a fraction of your long-term position. It's basically a "hedging" type of thing in that for the time you have the short on that portion of your exposure is 0.

This brings up a thought...

Functionally, having that short on is the same as if you were to add the same sized trade to your long position at the point where you'd exit your short, then closed it out where you'd have entered the short. In which case, in theory you'd actually be better off just leaving the new long addition open in anticipation of the longer-term trend continuing.

And thus do we veer off the point of the thread. :cheesy: