FPI - Fractional Product Inefficiency: The Impeccable Hedge

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deepleo
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Postby deepleo » Fri Oct 27, 2006 8:12 pm

Nicholishen wrote:In this example you should use the buy-bid if you expect FPI to rise and the opposite if you expect it to fall.

Tragapips wrote:Michal Kreslik

This topic is complex (at least for me) and i have some questions.

I can make a buy-bid ring:
Buy EUR/USD
Buy USD/CHF
Sell EUR/CHF

And i can make a sell- Ask ring
Sell EUR/USD
Sell USD/CHF
Buy EUR/CHF

Right?

If I´m right my question is: Should i use a buy ring when FPI is below 1 and a sell ring when FPI is above 1?

Or

Should i use a buy ring when dollar is loosing power and a sell ring when dollar is strength?

Maybe naive questions but as i said topic is complex to me.

Tia

Traga
But as Per Michal it should be as followed:

-------------------------------------------------------
Simple:

* use Ask price for FX symbol that is Bought
* use Bid price for FX symbol that is SoldShort

Michal
-------------------------------------------------

?????

Thanks
DeepLeo

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androfx
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Postby androfx » Sat Oct 28, 2006 8:09 pm

Somebody can be interested in graphs I have made. These are very first versions so no bells or whistles ;-)
I took tick data from FXDD from 25.10.06 20:00 till 27.10. 16:00 CET
(EURUSD) b1/a1
(USDCHF) b2/a2
EURCHF b3/a3

fpi1 = b1 * (b2) * (1/a3)
fpi2 = (1/a1) * (1/a2) * b3
b/a stands for variables - Bid/Ask for particular pair. Green line is for fpi1, blue line for fpi2.


My observations:
-Markets are very jumpy, you have to time your entries.
-You have to analyze tick quotes from your broker.
-There is difference between circles - carefully check which way you want to ride.


Is there anybody who can get tick data from Oanda or EFX ??
I expect that for Oanda it is possible only if you have their API rented. No idea about EFX.
Attachments
fpi2.png
Small version of graph
fpi2.png (98.64 KiB) Viewed 1515 times

Harm
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Postby Harm » Sat Oct 28, 2006 8:44 pm

I stumbled into this forum by accident, but I have to complement Michal with the very clear explanation of the tri-arb. I've been aware about it and always assumed that tradable inefficiencies were rare, but now it seems they're not.
However, successfull implementation strongly depends on your broker and that's the aparent weakness of this thing.
With your forex bucketshop, you're capitalizing on your broker's inefficiencies and they don't like that. Moreover, it seems you need to be able to trade individual units, which is only offered by a few (as far as I know), oanda, EFX and marketindex (only for germany).
Nevertheless, it still looks promissing and perhaps your broker is happy with the spreads and doesn't mind.

Personally, I love MT4 and I will see how it works out with my brokers.

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Postby Nicholishen » Sat Oct 28, 2006 9:15 pm

deepleo wrote:
Nicholishen wrote:In this example you should use the buy-bid if you expect FPI to rise and the opposite if you expect it to fall.

Tragapips wrote:Michal Kreslik

This topic is complex (at least for me) and i have some questions.

I can make a buy-bid ring:
Buy EUR/USD
Buy USD/CHF
Sell EUR/CHF

And i can make a sell- Ask ring
Sell EUR/USD
Sell USD/CHF
Buy EUR/CHF

Right?

If I´m right my question is: Should i use a buy ring when FPI is below 1 and a sell ring when FPI is above 1?

Or

Should i use a buy ring when dollar is loosing power and a sell ring when dollar is strength?

Maybe naive questions but as i said topic is complex to me.

Tia

Traga
But as Per Michal it should be as followed:

-------------------------------------------------------
Simple:

* use Ask price for FX symbol that is Bought
* use Bid price for FX symbol that is SoldShort

Michal
-------------------------------------------------

?????

Thanks
DeepLeo


Yes, obviously we are going to be buying at the Ask and selling at the Bid, but the question at hand is which direction do we trade the ring (buy,sell,ell OR sel,buy,buy)? Lets do a quick experiment. Say we have a perfect world and the FPI of the above meantion ring starts at one (or closest to 1 when Normalizing the price quotes). The scenario is the USDCHF breaks out 50 pips, leaving the market in the dust. The market then catches up to maintain it's equalibrium, as represented in the following illustrations.

eurusd 1.2734 1.2734 sub
usdchf 1.2648 1.2698 sub
eurchf 1.6106 1.6106 alpha
FPI 0.9999 1.0039
buy sell
eurusd 1.2734 1.2764 sub 30 -30
usdchf 1.2698 1.2678 sub -20 20
eurchf 1.6106 1.6183 alpha -77 77
FPI 1.0039 0.9999 -67 67

Now, as you can see there is an obvious right way, and an obvious wrong way to trade this ring. There is only one direction to take. That is, unless, you like loosing money :shock: . Which brings us to the second point.

The market jumped 50 pips yet once the market moved back to the perfect FPI of 1, the net pips moved 67. Where did the extra 17 pips come from? Herein lies the problem with the hedge because unless you can dynamically control positioning (which i have developed an algorithm to prove it can be done) it will be impossible to maintain a flat equity curve. Does anyone know where to trade with zero spread? If so we might have an opportunity to make the hedge a viable option...

kaizen
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Postby kaizen » Sun Oct 29, 2006 2:24 am

androfx wrote:
Is there anybody who can get tick data from Oanda or EFX ??
I expect that for Oanda it is possible only if you have their API rented. No idea about EFX.


Hi Guys,

I am about to start writing this into to my API systsem at Oanda. Just in the process of figuring it all out then I will write the code and see if it works real time.

Will let you know but it may be a couple of weeks before I get it done.

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Postby Harm » Sun Oct 29, 2006 1:57 pm

In some previous posts it was mentioned that you could construct rings that are interest positive. I've ran some calculations but I couldn't found any interest postive combinations.
The reason being, the swap rates are spread as well, different rates for long and short. So I don't see how you could end up interest positive.

But hopefully I'm wrong and overlooked something. In that case can anyone show me a ring that would be interest positive, taking into account the correct # of units for each pair?

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Postby androfx » Sun Oct 29, 2006 4:18 pm

androfx wrote:Is there anybody who can get tick data from Oanda or EFX ??
I expect that for Oanda it is possible only if you have their API rented. No idea about EFX.


I have been told that giving away Oanda ticks would be breaking their API agreement.
Anyway I studied EFX and found that they are giving ticks away free for personal usage through demo account. From now on I am exploring COM technology which is used in API/SDK.

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Postby rishi » Mon Oct 30, 2006 12:06 am

Nicholishen wrote:
deepleo wrote:
Nicholishen wrote:In this example you should use the buy-bid if you expect FPI to rise and the opposite if you expect it to fall.

Tragapips wrote:Michal Kreslik

This topic is complex (at least for me) and i have some questions.

I can make a buy-bid ring:
Buy EUR/USD
Buy USD/CHF
Sell EUR/CHF

And i can make a sell- Ask ring
Sell EUR/USD
Sell USD/CHF
Buy EUR/CHF

Right?

If I´m right my question is: Should i use a buy ring when FPI is below 1 and a sell ring when FPI is above 1?

Or

Should i use a buy ring when dollar is loosing power and a sell ring when dollar is strength?

Maybe naive questions but as i said topic is complex to me.

Tia

Traga
But as Per Michal it should be as followed:

-------------------------------------------------------
Simple:

* use Ask price for FX symbol that is Bought
* use Bid price for FX symbol that is SoldShort

Michal
-------------------------------------------------

?????

Thanks
DeepLeo


Yes, obviously we are going to be buying at the Ask and selling at the Bid, but the question at hand is which direction do we trade the ring (buy,sell,ell OR sel,buy,buy)? Lets do a quick experiment. Say we have a perfect world and the FPI of the above meantion ring starts at one (or closest to 1 when Normalizing the price quotes). The scenario is the USDCHF breaks out 50 pips, leaving the market in the dust. The market then catches up to maintain it's equalibrium, as represented in the following illustrations.

eurusd 1.2734 1.2734 sub
usdchf 1.2648 1.2698 sub
eurchf 1.6106 1.6106 alpha
FPI 0.9999 1.0039
buy sell
eurusd 1.2734 1.2764 sub 30 -30
usdchf 1.2698 1.2678 sub -20 20
eurchf 1.6106 1.6183 alpha -77 77
FPI 1.0039 0.9999 -67 67

Now, as you can see there is an obvious right way, and an obvious wrong way to trade this ring. There is only one direction to take. That is, unless, you like loosing money :shock: . Which brings us to the second point.

The market jumped 50 pips yet once the market moved back to the perfect FPI of 1, the net pips moved 67. Where did the extra 17 pips come from? Herein lies the problem with the hedge because unless you can dynamically control positioning (which i have developed an algorithm to prove it can be done) it will be impossible to maintain a flat equity curve. Does anyone know where to trade with zero spread? If so we might have an opportunity to make the hedge a viable option...


Hi Nicholishen

If i understand correctly, Once we open Impeccable Hedge Trade, we have to place more Lots to make it a perfect Hedge (based on market Movement!). If so, we might get into a situtaion where we might have to place 'N' number of Lots to maintain a Flat equity. Am I getting this right?

Thanks

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Postby Gert Frobe » Mon Oct 30, 2006 7:20 pm

here is a mt4 that will open the multi trades as well as close all of them over at the FF board. so thank you stockwet for the MT4

http://www.forexfactory.com/forexforum/ ... php?t=9502

but whats funny- look who is working (not stockwet) on it to do somthing like FPI. is this the guy that banned TRO and put the FPI in the Classified Ads?

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Postby Nicholishen » Mon Oct 30, 2006 10:13 pm

dpatloll wrote:
Nicholishen wrote:
deepleo wrote:
Nicholishen wrote:In this example you should use the buy-bid if you expect FPI to rise and the opposite if you expect it to fall.

Tragapips wrote:Michal Kreslik

This topic is complex (at least for me) and i have some questions.

I can make a buy-bid ring:
Buy EUR/USD
Buy USD/CHF
Sell EUR/CHF

And i can make a sell- Ask ring
Sell EUR/USD
Sell USD/CHF
Buy EUR/CHF

Right?

If I´m right my question is: Should i use a buy ring when FPI is below 1 and a sell ring when FPI is above 1?

Or

Should i use a buy ring when dollar is loosing power and a sell ring when dollar is strength?

Maybe naive questions but as i said topic is complex to me.

Tia

Traga
But as Per Michal it should be as followed:

-------------------------------------------------------
Simple:

* use Ask price for FX symbol that is Bought
* use Bid price for FX symbol that is SoldShort

Michal
-------------------------------------------------

?????

Thanks
DeepLeo


Yes, obviously we are going to be buying at the Ask and selling at the Bid, but the question at hand is which direction do we trade the ring (buy,sell,ell OR sel,buy,buy)? Lets do a quick experiment. Say we have a perfect world and the FPI of the above meantion ring starts at one (or closest to 1 when Normalizing the price quotes). The scenario is the USDCHF breaks out 50 pips, leaving the market in the dust. The market then catches up to maintain it's equalibrium, as represented in the following illustrations.

eurusd 1.2734 1.2734 sub
usdchf 1.2648 1.2698 sub
eurchf 1.6106 1.6106 alpha
FPI 0.9999 1.0039
buy sell
eurusd 1.2734 1.2764 sub 30 -30
usdchf 1.2698 1.2678 sub -20 20
eurchf 1.6106 1.6183 alpha -77 77
FPI 1.0039 0.9999 -67 67

Now, as you can see there is an obvious right way, and an obvious wrong way to trade this ring. There is only one direction to take. That is, unless, you like loosing money :shock: . Which brings us to the second point.

The market jumped 50 pips yet once the market moved back to the perfect FPI of 1, the net pips moved 67. Where did the extra 17 pips come from? Herein lies the problem with the hedge because unless you can dynamically control positioning (which i have developed an algorithm to prove it can be done) it will be impossible to maintain a flat equity curve. Does anyone know where to trade with zero spread? If so we might have an opportunity to make the hedge a viable option...


Hi Nicholishen

If i understand correctly, Once we open Impeccable Hedge Trade, we have to place more Lots to make it a perfect Hedge (based on market Movement!). If so, we might get into a situtaion where we might have to place 'N' number of Lots to maintain a Flat equity. Am I getting this right?

Thanks

Exactly! :D The hedge is maintained by perfect positioning. There are several rings that are interest positive, but it is impossible maintain a 'futile' style hedge without dyamically controlling the lots. Now, if we are able to properly identify the long term trend of a couple of the pairs, we can control positioning to mitigate risk and be interest positive!

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