apfx wrote:It results that the following trades combination:
1. Buy EURJPY, Sell, EURUSD, Sell USDJPY
2. Sell EURJPY, Buy, EURUSD, Buy, USDJPY
produced profit when entering the market with FPI <0 and exiting with FPI >0 but not in equal amount.
Double check your math. I believe they should both come out to the same profit, assuming spreads are equal.
2. Since the FPI <> 0 shows that the market is inefficient there must be a way take advantage of FPI>0 too. How come no matter how we combined trades it produced loss?
As I pointed out above, I don't think this is possible. This is because of what the FPI number represents.
FPI can be viewed as a discount/premium accross a group of currencies. A number <1 represents a discount, and >1 represents a premium. If FPI is >1, one or more pairs are trading above fair value, and either buying or selling will not produce a profit. Whenever there is a premium on one or more pairs, something is overvalued, and going long/short will lose money.
However, selling at a premium is the goal. "Buying" when the group is at a maximum discount and "selling" the group at the maximum premium is the name of this game.