FPI - Fractional Product Inefficiency: The Impeccable Hedge

NeoTicker indicators

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michal.kreslik
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Postby michal.kreslik » Fri Nov 03, 2006 12:34 am

Gert Frobe wrote:the first was from a PM from that dickhead scott over at the *censored - swear word* from FF 5 min. before they banned me(but hay im not bitter LOL)- he was trying to tell me that he wasn't trying to steal michal's idea as his own. he said he was working on a synthetic hedge that dubbled his account sence aug. and how the FPI would not work w/ the brokers from FF or MT4 platform.


Funny :wink: - seems like ForexFactory admins are sorta afraid of me since they deleted the whole FPI topic:

http://www.forexfactory.com/forexforum/ ... to=newpost

And just for the record, I was not being TRO-like aggressive there :D

Michal

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Postby Luke » Fri Nov 03, 2006 1:24 am

michal.kreslik wrote:
Funny :wink: - seems like ForexFactory admins are sorta afraid of me since they deleted the whole FPI topic:

http://www.forexfactory.com/forexforum/ ... to=newpost

And just for the record, I was not being TRO-like aggressive there :D

Michal


That's interesting. Especially since their admin, Merlin seems to have at one point been very interested in arbitrage and appears to have gone as far as implementing a system. Discussion on this thread:
http://www.forexfactory.com/forexforum/ ... ge=5&pp=15

bwilhite
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Postby bwilhite » Fri Nov 03, 2006 2:13 am

michal.kreslik wrote:People are still asking me about the correct position size for FPI.

Let's make it perfectly clear now.

We decided to employ this FPI ring:
  • SellShort EUR/USD
  • Buy EUR/JPY
  • SellShort USD/JPY

You see, we have hedged the colored currencies one unit for one. The JPY is not hedged precisely one for one (14,937,000 for 14,934,113), but it can't be closer.

Michal

Keep in mind that experts store and recall information differently than novices...I usually think in big ideas and leave the details to the mathematicians :wink: Michal's grasp of mathematics outstrips mine, even though I have college calculus under my belt.

Having said that, I did my homework and worked through the calculations myself several different ways. For example, we can also go Short 1 lot USD/JPY, Long .79192 lots EUR/JPY and Short .79192 lots EUR/USD. But this is hardly clear from the original post. The reader is left to fend for himself on this point.

I also did another pair, or "ring", using current quotes. Might I suggest that providing an algorithm to work out the correct position sizes would come in helpful. This little piece of posted work is not going to be enough for most traders, although I could work it out on my own now. Also, I personally would hate to have to do it on the fly, given how I basically have to work through it all over again when I want to know the correct lot sizes. I'm sure the algorithm is already incorporated in your code, but seeing it in a higher order, human, language would be helpful (this is kind of like how C programmers don't document their code very well). If no one else posts the algorithm I will.

And finally, is anybody really trading this?

Thank you all for the interesting thread, it's nice to see something that goes beyond, "when the blue line turns up..."


:lol:

BW

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Postby bwilhite » Fri Nov 03, 2006 2:27 am

Ok, now that I've got that annoying little detail settled...

I really think it might be instructive to hear more about makosgu's idea of playing with the time variable. I know that really this means we are not completely hedged at some point...so how do you manage the risk involved? I can imagine that during certain times of the day, the risk would be very manageable because movement would be minimal, but maybe he has something else in mind?

Also, you seem to imply that you are tracking a very large set of assets at any given point and then arbitraging them all (I like the crowd analogy)...could you elaborate? If this is what you meant, then I imagine we would need very powerful, fast, and stable computing and execution capability...maybe I'm wrong. I wonder whether smaller retail investors have access to what they would need to execute.

That guy from Japan is nuts...this kind of thing is done all the time, but mostly by market makers and institutions...I even found opportunity to hedge the Euro ETF versus spot last year, but the profit margin wasn't worth it. How do the institutions make the margin worth it? The only thing I can think of is LOTS of leverage.

BW

p.s.--I believe we might be more successful looking to arbitrage between brokers, of course that gets more complicated execution-wise.

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Nicholishen
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Postby Nicholishen » Fri Nov 03, 2006 6:45 am

Here is a little trick that i use to calculate the lots sizes;

Step 1. Order the symbols in the following way a/c, a/b, b/c. example EURJPY,EURAUD,AUDJPY.
the quote price of a/b is the positioning factor. Let's say 1.6500

Now, lets say we want to trade an aggregate position size of 10 lots. Here's how to set the lot size for a/c & a/b: (2n)+(nFACTOR)=10. simplified: 3.65a=10a
So now we have the lot size for a/c and a/b which is 2.74. b/c=2.74*1.65;4.52

a/c=2.74
a/b=2.74
b/c=4.52
Last edited by Nicholishen on Sat Nov 04, 2006 7:20 am, edited 1 time in total.

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Postby bwilhite » Fri Nov 03, 2006 12:00 pm

Thanks Nicholishen, that helps immensely!

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Nicholishen
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Postby Nicholishen » Fri Nov 03, 2006 11:13 pm

Here is a little script for those wanting to see the fpi in real time on MT4. Place the script in the experts/scripts folder, and enjoy! BTW, sorry I can only post exp file.
Attachments
REAL_TIME_FPI.rar
(3.06 KiB) Downloaded 403 times

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EvgeniX
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Postby EvgeniX » Fri Nov 03, 2006 11:31 pm

Nicholishen wrote:Here is a little script for those wanting to see the fpi in real time on MT4. Place the script in the experts/scripts folder, and enjoy! BTW, sorry I can only post exp file.


Hello,

Why you make big secret from 2 line of your code for real time fpi?

Can you post mq4 file for everybody!!

Thx

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Nicholishen
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Postby Nicholishen » Sat Nov 04, 2006 3:50 am

EvgeniX wrote:
Nicholishen wrote:Here is a little script for those wanting to see the fpi in real time on MT4. Place the script in the experts/scripts folder, and enjoy! BTW, sorry I can only post exp file.


Hello,

Why you make big secret from 2 line of your code for real time fpi?

Can you post mq4 file for everybody!!

Thx


i dont understand your question. can you please clarify?

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EvgeniX
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Postby EvgeniX » Sat Nov 04, 2006 3:56 am

Why you can not share mq4 file?

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