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ForEx (pg. 3)
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| Taipan |
| quote: | Originally posted by Comrade Stalin
I just leave it alone. Let it run by itself. It's theoretically perfectly hedged. Try it out. Make sure the buying power that each trade takes away from you is as equal as you can possibly make it. That way, each position offsets the other as much as possible. It's stuff like this that gives "hedge" funds their name. Like buying McDonalds and betting against Burger King. If McDonalds declines then your bet against Burger King should help offset this loss because these two companies are very closely correlated so if one is declining, they probably both are. Basically, you take both sides of the trade, so you limit risk.
I use the thinkorswim platform to practice FOREX. Best free desktop platform around. Nothing beats it. Try it out. |
1) How do you know it's perfectly hedged? Not trying to challenge you, I was just wondering if you rely on your own judgement to come to this conclusion or is it common knowledge? I can't imagine anything as volatile as currencies can be perfect and when you are dealing with 100x leverage, the slightest surprise can be disastrous.
2) Sure if you buy McDonalds and sell Burger King it could go as you said, but what if Burger King reinvents themselves and steals market share from McDonalds, then you are ed.
3) If your bet is perfectly hedged, then you make or lose money on marginal deviations. But since your aim was a perfect hedge, then whatever way the deviations occurs are purely luck and not intentional. Do you think you have more than a 50% chance of being successful? |
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| Comrade Stalin |
| quote: | Originally posted by Taipan
1) How do you know it's perfectly hedged? Not trying to challenge you, I was just wondering if you rely on your own judgement to come to this conclusion or is it common knowledge? I can't imagine anything as volatile as currencies can be perfect and when you are dealing with 100x leverage, the slightest surprise can be disastrous.
2) Sure if you buy McDonalds and sell Burger King it could go as you said, but what if Burger King reinvents themselves and steals market share from McDonalds, then you are ed.
3) If your bet is perfectly hedged, then you make or lose money on marginal deviations. But since your aim was a perfect hedge, then whatever way the deviations occurs are purely luck and not intentional. Do you think you have more than a 50% chance of being successful? |
1) Let's take a look why it's perfectly hedged. Here's the 3 trades again.
BUY USD/JPY
SELL EUR/JPY
BUY EUR/USD
If the dollar falls, I lose on USD/JPY, but gain on EUR/USD. The loss is offset by the gain. If the Euro falls, I lose on EUR/USD, but gain on EUR/JPY. The loss is offset by the gain. If the Yen falls, I lose on EUR/JPY, but gain on USD/JPY. The loss is again offset by the gain. Every loss is offset by a gain and vice-versa, which makes it a perfect hedge.
2) I used a stock market example of a hedge which certainly can deviate as you said from competition but normally their stocks move in tandem with each other. But you bring up a good point. McDonalds and Burger King are still two different companies. Whereas, in the FOREX, I'm trading both sides of the SAME thing. In the 3 trades above, I take both the long AND short side of USD, EUR, and JPY. So you don't have to worry about "Burger King" reinventing themselves and "McDonald's" losing stock value as a result.
3) The trades are theoretically perfectly hedged so I should theoretically have a profit/loss that is always at $0. But reality shows that there are deviations, though they are small. What I have observed is the profit/loss hovers above and below $0 but basically just gyrates around that level, proving the hedge works. Not perfectly, but it works. The deviations aren't huge at all either. Just a few hundreds dollars one way or the other while I have $9,000 out of $10,000 invested. My goal wasn't really to make huge profits but rather to just preserve my capital while still being fully invested. One idea could be to sell the positions if the P/L Open reaches $500. Take the profit and get into another perfect hedge. Exit that one when P/L Open gets to $500 again. Repeat. Set a predetermined profit level and get out and repeat. Don't set too high a number or you'll never reach it since any big gains on a position would eventually be offset by a loss on another position and return your P/L Open back to $0. |
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| Marcus Summers |
| this thread is boring |
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| fbgdavidson |
| quote: | Originally posted by Comrade Stalin
In certain markets, high leverage is the norm. High leverage is necessary in the FOREX because currencies usually make very small movements. We're talking about a change in the exchange rate of say $0.0125 for the day. Who can make money on a one penny move with 1x leverage? |
Indeed, the practicalities of trading Forex versus equities is v. different but the 100x leveraged label is scary in its own right ;) |
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| srussell0018 |
| quote: | Originally posted by Marcus Summers
this thread is boring |
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| CorneliusCB21T |
| a sucker born every minute |
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| Comrade Stalin |
| quote: | Originally posted by Marcus Summers
this thread is boring |
Should we be talking about Lady Gaga's newest album? :rolleyes: |
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| Jarvmeister |
I find this thread fascinating as it happens.
So, Comrade Stalin, if you invest your $9000 then what you are saying is that your investment, using the system you have outlined, could potentially fluctuate in value by +/- $500 and when it does hit +$500 you can cream off that profit and start over again?
I've got £10,000 in the bank...... hmmmm!
:eek: |
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| Marcus Summers |
| quote: | Originally posted by Comrade Stalin
Should we be talking about Lady Gaga's newest album? :rolleyes: |
I have bigger fish to fry, son. |
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| Comrade Stalin |
| quote: | Originally posted by Jarvmeister
I find this thread fascinating as it happens.
So, Comrade Stalin, if you invest your $9000 then what you are saying is that your investment, using the system you have outlined, could potentially fluctuate in value by +/- $500 and when it does hit +$500 you can cream off that profit and start over again?
I've got £10,000 in the bank...... hmmmm!
:eek: |
Yep that's exactly right. I chose $500 as an arbitrary number. If you do this little hedge system trade I outlined, you should observe how it behaves for a couple weeks. Try to gauge the average deviation from $0. So if it fluctuates usually to +/- $250, then that's your number. You have to decide for yourself what your number is based on what you observe. Of course, the higher the better, but you don't want it so high that your profit/loss never reaches it. I would advise you practice this before doing it for real so you know what you're doing. As soon as you have taken profit 3 times then I think you'd be ready to use real capital. I could help you come up with several perfect hedges using a variety of currencies if you want. As always, you assume all responsibility for your trades, so test my strategy first to see if it works for you, before you put down real capital. |
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| Comrade Stalin |
| quote: | Originally posted by Marcus Summers
I have bigger fish to fry, son. |
Whatever fish you're frying can't possibly be bigger than a market that turns over $4 trillion a day and gives you the potential to double your money faster than almost anything else you could do outside of finance if you can stomach the risk. |
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| Nrg2Nfinit |
lol, why not just play the natural gas casino 10:30 am on thursday?
cough cough. |
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