FPI - Fractional Product Inefficiency: The Impeccable Hedge

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smotty1
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Postby smotty1 » Wed Nov 08, 2006 10:33 am

Hi Michal

Thanks for the link. I understand from this that there are four ways to calculate the FPI

Unfortunately I am not a mathematician or a programmer and I dont understand what the graphs are telling me.

I really really appreciate your time and efforts on bringing this to the attention of the forum

I can see that the FPI "wiggles" as you say between less than 1 and greater than 1, the data i have proves this and that there is an arbitrage opportunity. However this is where i get lost, putting the theory into practice.

Any advice would be gratefully received

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Aennea
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Postby Aennea » Wed Nov 08, 2006 4:20 pm

Hi, Michal,

a friend of mine told me about kreslik.com today. Your FPI system is brilliant!

I've heard that a large hedge fund will pay you to automate FPI for them. Is there any chance of me getting the code when it's done? Of course, I don't want your work for free :)

Cheers,
Andy

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Postby bitcy » Wed Nov 08, 2006 5:03 pm

hi again, do you remember me? I am the nuts japanese bitchy guy.
Please allow me to modify your post in the first page of this tread, just to make the corect calculus. here it is, i glow what i changed:

"Input information for the Impeccable Hedge open (considering Oanda spreads as described above):

* FPI: 0.9999
* bar close date/time: 6/29/2006 3:15 PM
* price: close
* EUR/JPY: Bid 145.61 / Ask 145.63
* EUR/USD: Bid 1.2647 / Ask 1.26485
* USD/JPY: Bid 115.15 / Ask 115.17

Input information for the Impeccable Hedge close:

* FPI: 1.0004
* bar close date/time: 6/30/2006 9:45 AM
* price: close
* EUR/JPY: Bid 145.88 / Ask 145.90
* EUR/USD: Bid 1.2753 / Ask 1.27545
* USD/JPY: Bid 114.34 / Ask 114.36

Trade analysis:

* SellShort EUR/JPY
* open: SellShort 100,000 EUR/JPY @ 145.61; we pay 100,000 EUR, we get 14,561,000 JPY
* close: BuyToCover 100,000 EUR/JPY @ 145.90; we get 100,000 EUR, we pay 14,590,000 JPY
* profit/loss = -29,000 JPY

* Buy EUR/USD
* open: Buy 100,000 EUR/USD @ 1.26485; we get 100,000 EUR, we pay 126,485 USD
* close: Sell 100,000 EUR/USD @ 1.2753; we pay 100,000 EUR, we get 127,530 USD
* profit/loss = +1,045 USD

* Buy USD/JPY
* open: Buy [glow=red]126,485[/glow] USD/JPY @ 115.17; we get [glow=red]126,485[/glow] USD, we pay [glow=red]14,567,277[/glow] JPY
* close: Sell [glow=red]126,485[/glow] USD/JPY @ 114.34; we pay [glow=red]126,485[/glow] USD, we get [glow=red]14,463,295[/glow] JPY
* profit/loss = [glow=red]-104,982[/glow] JPY

* Overall profit/loss at the time of trade close in USD:
* EUR/JPY trade: -29,000 JPY / 114.36 (USD/JPY) = -254 USD
* EUR/USD trade: + 1,045 USD
* USD/JPY trade: [glow=red]-104,982[/glow] JPY / 114.36 (USD/JPY) = [glow=red]-917[/glow] USD
* Sum: 1,045 USD - 254 USD - [glow=red]917[/glow] USD = [glow=red]-126[/glow] USD netto

So our Impeccable hedge trade did earn us net [glow=red]LOSS of 126[/glow] USD after spreads. Sure, it's nothing to write home about, but it's sure [glow=red]126 USD LESS[/glow] in your pocket without risking anything. You see, we were

FLAT

all the time and still were able to make a [glow=red]big LOSS[/glow]. A fairy-tale magic... "

400396
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Postby 400396 » Wed Nov 08, 2006 6:04 pm

hi Michael .

great work, when you will have the FPI indicator for the MT4?

avi.

Harm
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Postby Harm » Wed Nov 08, 2006 6:13 pm

bitcy, perhaps you should enter the positions when the FPI is lower as suggested before 8) , 0,9999 hardly is an imbalance in prices.
your differential FPI of 0,0005 (1,0004 - 0,9999) is indeed not enough to cover the spreads....

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Postby michal.kreslik » Wed Nov 08, 2006 7:11 pm

bitcy wrote:hi again, do you remember me? I am the nuts japanese bitchy guy.
Please allow me to modify your post in the first page of this tread, just to make the corect calculus. here it is, i glow what i changed:

"Input information for the Impeccable Hedge open (considering Oanda spreads as described above):

* FPI: 0.9999
* bar close date/time: 6/29/2006 3:15 PM
* price: close
* EUR/JPY: Bid 145.61 / Ask 145.63
* EUR/USD: Bid 1.2647 / Ask 1.26485
* USD/JPY: Bid 115.15 / Ask 115.17

Input information for the Impeccable Hedge close:

* FPI: 1.0004
* bar close date/time: 6/30/2006 9:45 AM
* price: close
* EUR/JPY: Bid 145.88 / Ask 145.90
* EUR/USD: Bid 1.2753 / Ask 1.27545
* USD/JPY: Bid 114.34 / Ask 114.36

Trade analysis:

* SellShort EUR/JPY
* open: SellShort 100,000 EUR/JPY @ 145.61; we pay 100,000 EUR, we get 14,561,000 JPY
* close: BuyToCover 100,000 EUR/JPY @ 145.90; we get 100,000 EUR, we pay 14,590,000 JPY
* profit/loss = -29,000 JPY

* Buy EUR/USD
* open: Buy 100,000 EUR/USD @ 1.26485; we get 100,000 EUR, we pay 126,485 USD
* close: Sell 100,000 EUR/USD @ 1.2753; we pay 100,000 EUR, we get 127,530 USD
* profit/loss = +1,045 USD

* Buy USD/JPY
* open: Buy [glow=red]126,485[/glow] USD/JPY @ 115.17; we get [glow=red]126,485[/glow] USD, we pay [glow=red]14,567,277[/glow] JPY
* close: Sell [glow=red]126,485[/glow] USD/JPY @ 114.34; we pay [glow=red]126,485[/glow] USD, we get [glow=red]14,463,295[/glow] JPY
* profit/loss = [glow=red]-104,982[/glow] JPY

* Overall profit/loss at the time of trade close in USD:
* EUR/JPY trade: -29,000 JPY / 114.36 (USD/JPY) = -254 USD
* EUR/USD trade: + 1,045 USD
* USD/JPY trade: [glow=red]-104,982[/glow] JPY / 114.36 (USD/JPY) = [glow=red]-917[/glow] USD
* Sum: 1,045 USD - 254 USD - [glow=red]917[/glow] USD = [glow=red]-126[/glow] USD netto

So our Impeccable hedge trade did earn us net [glow=red]LOSS of 126[/glow] USD after spreads. Sure, it's nothing to write home about, but it's sure [glow=red]126 USD LESS[/glow] in your pocket without risking anything. You see, we were

FLAT

all the time and still were able to make a [glow=red]big LOSS[/glow]. A fairy-tale magic... "


Dear Bitchy,

once again, seems like you're reinventing the wheel. Next time, I advice you to read the whole thread before you decide to make a complete loco out of you by posting such a nonsense.

First of all, in this post:

http://kreslik.com/forums/viewtopic.php?p=2311#2311

I was saying:

Michal wrote:Sure, that was a typo by me. I have been writing that post deep in the night

Obviously, one should always be hedging the individual currencies one unit for one, otherwise it's not a hedge.
Michal


You see, you're the only one who is "correcting the already corrected".

Although the correct calculations were posted several times here in this thread, I'll do that just once more specially for you, Bitchy. But let's settle for a deal: I post the correct calc once more and you stop bugging people here in this thread, ok?



Michal

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TheEconomist
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Postby TheEconomist » Wed Nov 08, 2006 7:34 pm

Very interesting strategy , Michal... wondered about such a thing some time ago, but I thought it was impossible...

However, it is not explained enough, several things discussed here raise serious question marks.

For example,
1. buying at a discount and selling at a premium
2. both rings produced profit when entering at low FPI and exiting at high, both produced loss when entering at high FPI and exiting at low

Isn't it strange?
A SBB ring is the opposite of a BSS ring...When one of them is in profit, the other is in loss (if you don't believe me, see that every trade is reversed)
So what means to buy at this discount?
Enter BSS ? or SBB ?
Since the rings go in opposite directions, it is not possible that BOTH to mean "buy" when FPI is low and BOTH, reversed, to mean "sell" when FPI is high...
If there would be NO REASON to discriminate between BSS and SBB, both of them producing profit at high FPI, why not open both at the same time ':shock:' ... Of course, every of the 3 pairs will be caught in a futile hedge... so the portfolio would stuck with a permanent loss of the three spreads...

I would like some clarifications on these matters. I'd like you to look on my FPI expert advisor and tell me if it's good for something...

About the ea:

- First put bclib.mq4 in include directory ;
- Works with micros by default (this is the only way to get a good hedge in MT4, cause impeccable is impossible)
- The Appendix adds up an "m" at the end of the contracts (setup for InterbankFX mini) (too bad CrownFX has no micros, at their 1 pip spread on majors)
- FPI_LO and FPI_HI levels (I think now it's very tight)
- fpitest.mq4 is a story teller ... like Michal's excel table on page 7

The EA scans 8 possible rings (4 given rings x 2 possible versions)
and enters trade on the first ring reaching FPI_LO from downside to up.

I'm waiting for your comments and improvements...
Attachments
fpi.zip
bclib.mq4 , fpitrader.mq4, fpitest.mq4
(18.77 KiB) Downloaded 285 times

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EvgeniX
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Postby EvgeniX » Wed Nov 08, 2006 8:02 pm

The Economist wrote:Very interesting strategy , Michal... wondered about such a thing some time ago, but I thought it was impossible...

However, it is not explained enough, several things discussed here raise serious question marks.

For example,
1. buying at a discount and selling at a premium
2. both rings produced profit when entering at low FPI and exiting at high, both produced loss when entering at high FPI and exiting at low

Isn't it strange?
A SBB ring is the opposite of a BSS ring...When one of them is in profit, the other is in loss (if you don't believe me, see that every trade is reversed)
So what means to buy at this discount?
Enter BSS ? or SBB ?
Since the rings go in opposite directions, it is not possible that BOTH to mean "buy" when FPI is low and BOTH, reversed, to mean "sell" when FPI is high...
If there would be NO REASON to discriminate between BSS and SBB, both of them producing profit at high FPI, why not open both at the same time ':shock:' ... Of course, every of the 3 pairs will be caught in a futile hedge... so the portfolio would stuck with a permanent loss of the three spreads...

I would like some clarifications on these matters. I'd like you to look on my FPI expert advisor and tell me if it's good for something...

About the ea:

- First put bclib.mq4 in include directory ;
- Works with micros by default (this is the only way to get a good hedge in MT4, cause impeccable is impossible)
- The Appendix adds up an "m" at the end of the contracts (setup for InterbankFX mini) (too bad Crownfox has no micros, at their 1 pip spread on majors)
- FPI_LO and FPI_HI levels (I think now it's very tight)
- fpitest.mq4 is a story teller ... like Michal's excel table on page 7

The EA scans 8 possible rings (4 given rings x 2 possible versions)
and enters trade on the first ring reaching FPI_LO from downside to up.

I'm waiting for your comments and improvements...


Thanks for EA, but i do not know its freeze all MT4 after i attached it to Chart??

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TheEconomist
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Postby TheEconomist » Wed Nov 08, 2006 8:06 pm

the screen doesn't flicker...wait a little, you will see some digits modifying

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Postby TheEconomist » Wed Nov 08, 2006 8:11 pm

hmm...I just found MODE_SWAPLONG and MODE_SWAPSHORT as parameters for MarketInfo().... I could let it choose only interest positive rings... but what if ring type MATTERS?

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