FPI - Fractional Product Inefficiency: The Impeccable Hedge

NeoTicker indicators

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fiveshorts
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Where do I stand?

Postby fiveshorts » Tue Jan 30, 2007 11:20 pm

Hi,

Just read all 28 pages of this thread (which I discovered via a link from the FFS forum). Stunning debate, stunning theory, utterly enticing...

I've repaired the cracks in my skull where my brain exploded and I'm going to ask the all-time newbie (but respectful) question: is there anything in this "technique" for a guy who doesn't have an advanced degree in calculus?

I have nothing but respect for the capabilities represented in this thread — will never have this kind of mental prowess — but I was simply wondering if the whole thing could be distilled down to a useable tool that a well-meaning and diligent trader with reasonable resources and quick reflexes could benefit from...?

"Little and often" is a very attractive string to have in one's bow. I was hoping someone could boil down these 28 pages of heady theory down to some sort of "plug n' play" utility that regular-size brains could get into?

Now look, I've gone and insulted you all. Sorry. You know what I'm getting at. I'm sure there are lots of folks who've read this and thought the same thing. And if you don't ask...

I'm currently on Metatrader and I've got the FPI indicator up and running... I've opened an EFX demo account. I'm eager to learn.

Many thanks.

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michal.kreslik
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Re: Where do I stand?

Postby michal.kreslik » Wed Jan 31, 2007 3:33 am

fiveshorts wrote:Hi,

Just read all 28 pages of this thread (which I discovered via a link from the FFS forum). Stunning debate, stunning theory, utterly enticing...

I've repaired the cracks in my skull where my brain exploded and I'm going to ask the all-time newbie (but respectful) question: is there anything in this "technique" for a guy who doesn't have an advanced degree in calculus?

I have nothing but respect for the capabilities represented in this thread — will never have this kind of mental prowess — but I was simply wondering if the whole thing could be distilled down to a useable tool that a well-meaning and diligent trader with reasonable resources and quick reflexes could benefit from...?

"Little and often" is a very attractive string to have in one's bow. I was hoping someone could boil down these 28 pages of heady theory down to some sort of "plug n' play" utility that regular-size brains could get into?

Now look, I've gone and insulted you all. Sorry. You know what I'm getting at. I'm sure there are lots of folks who've read this and thought the same thing. And if you don't ask...

I'm currently on Metatrader and I've got the FPI indicator up and running... I've opened an EFX demo account. I'm eager to learn.

Many thanks.


Hi, fiveshorts,

for me, it's mandatory that every market theory should lead to a practical application. That's what the trading is about - not an academic discussion in the university library with tea and cakes, but rather a V12 Bentley in the garage :)

That's why I'm in the process of building the FPI framework with C#.NET, SQL and NeoTicker. In addition to coding that for myself, I'm paid for that by a couple of clients who are ready to trade FPI (some of them big), so I can't disclose the code publicly as no one would pay for a publicly available code, I guess :) I can tell you that covering all the various unthought-of aspects of FPI in a real trading world is not at all that easy as it might seem at first glance.

If by any chance you are interested in getting the FPI framework written by me, just leave me a PM or drop me a line at michal.kreslik(at)kreslik.com. Anyway, my programming costs are already covered by now so I don't need to solicit anything.

By the way, I don't think FPI will ever work automatically on MT4 as MT4-connected brokers are doomed to pay a commission to MT4. This is not the best setup for getting the real interbank prices / inefficiencies.

Also, I'm planning to write a Currenex order interface to NeoTicker. I will implement the FIX interbank protocol in that.

Michal

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Postby Stevensign » Sat Feb 03, 2007 10:35 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

I've read through 29 pages of this thread, this is my first post in this thread. Thank you Michal for your great info.
I work on MT4 platforms and I think I agree with with one of your last posts that states :
By the way, I don't think FPI will ever work automatically on MT4 as MT4-connected brokers are doomed to pay a commission to MT4. This is not the best setup for getting the real Interbank prices / inefficiencies.

I have heard that the "Interbank sytstem" only trades standard lots ($100,000) and if you're not trading whole standard lots, then you HAVE to go through a dealing desk, period! While the IB you go through may deny this, the banks they deal through have to do this. So, ALL IBs have dealing desks UNLESS you trade in standard lots. Please correct me if I'm wrong.


Let's see, so much to try to contribute.
I have a live efx account which I'm closing because IMHO they are theives. The spreads look nice but the in and out commissions kill you, IMHO and the order latencies are bad.
I was going to give up on IBFX but recently heard they are the largest MT4 broker, they have good spreads, fantasic interest, and 400:1 leverage up to $100,000 if you are a member of Freedom Rocks. Some of the best MT4 backtest data is using MultiBank FX from FXLQ.com. MultibankFX has the best spreads (maybe not best interest) and 1 minute backtest data that goes basck to January 1999.

One of the problems with MT4 data is missing candles, the indicators I've written account for this. This was much harder to fix than the basic calculations.
I've attached results from Michal's ratio's looking back. He truly has the perfect hedge! But I don't think MT4 can make money from it(as he stated). The three pairs are so well balanced that they typicallly only vary about +-10 pips but the cost to re-enter is about 16 pips. I haven't found a MT4 circle that actually ends up with positive interst when lots are taken into account.

I've attached three screenshots of my MT4 indicator that displays net dollars profit (it does not include SWAP/Interest). I believe some of the spikes in the data are from missing /incorrect data. I'm still lookiing into it.

I was hoping to make money on interest but that doesn't look like it will work. :(
Attachments
kreslik weelky.gif
kreslik weelky.gif (21.96 KiB) Viewed 682 times
kreslik daily.gif
kreslik daily.gif (30.86 KiB) Viewed 682 times
kreslik m15.gif
kreslik m15.gif (35.6 KiB) Viewed 682 times

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Postby pipscalper » Sat Feb 03, 2007 10:50 pm

michal.kreslik wrote:Hedge position may be open for as long as you wish without exposing you to any risk. It's like having EUR/USD and EUR/USD "futile hedge" open. You don't gain, you don't lose. You're just flat.
Great forum, great disscutions and great topic! I registered just because of this very interesting topic.

OK, here is my 2 pips... In the real world, this impeccable hedge positions, or as I like to call it synthetic crosses, are not such a "futile hedge" after all. Synthetic crosses, or "impeccable hedges" like EUR/USD, USD/JPY, EUR/JPY or GBP/USD, USD/JPY, GBP/JPY or EUR/USD, USD/CHF, EUR/CHF can flacuate 50-100 pips and can stay 50-100 pips up or down for months!

So, what I am trying to say is that this "impeccable hedge" is not the same as bying EUR/USD and selling EUR/USD at the same time. You DO EXPOSE YOURSELF TO MARKET RISK, however, the risk is much smaller and limited. Plus, there are unknown factors such as synthetic pairs getting out of balance...

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Postby pipscalper » Thu Feb 08, 2007 6:12 am

Wow, this discussion really quieted down... What's going on?

eagles or anybody, could you tell me how you combine 3 currencies into one line (like the blue line on this chart)? Can it be done on MT4 platform? Any suggestions would help a lot! Thanks.

eagles wrote:

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Postby Stevensign » Thu Feb 08, 2007 8:26 am

pipscalper wrote:Wow, this discussion really quieted down... What's going on?

eagles or anybody, could you tell me how you combine 3 currencies into one line (like the blue line on this chart)? Can it be done on MT4 platform? Any suggestions would help a lot! Thanks.

eagles wrote:

I wrote an indicator that combines up to four currencies. Identify the currencies you're interested in, the number of lots per currency, entry prices and buy or sell and I'll show you the resulting profit in dollars or percent.

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Re: FPI - Fractional Product Inefficiency: The Impeccable He

Postby FoxerFX » Thu Feb 08, 2007 4:01 pm

michal.kreslik wrote:Hello, friends,

in this article I’ll invite you to discover the FPI - Fractional Product Inefficiency concept. I call the trading technique derived from this concept The Impeccable Hedge. In the text below, you will find out what is FPI, how do we calculate it and how do we trade it.



Hi,
some notes concerning your thread:
1. you have reinvented the wheel which has name - triangular arbitrage at FX market;
2. you are right that with 3 currency pair you can create fully hedged portfolio, but you should properly calculate amount of third currency pair to make portfolio hedged, and thats why Oanda is ideal for such puproses as it allows to trade any amount of curency
3. it will not work on that brokers which allows to trade only full lots or minilots because you will have exposure and portfolo will not be hedged
4. instead of monitoring Eur/usd*usd/chf*eur/chf=1 try to monitore short(eur/usd*usd/chf) - long(eur/chf)=x or wise versa and so on, it will give better signals for entries and exits
5. it will not work on 15 minutes charts only on tick data
6. this type of acitivity is being prohibited by all brokers, even Oanda
7. if you want to trade this idea it will be better to trade it through several brokers for masking of this activity and increasing of numbers of such opportunities (Oanda will be best for doing hedge positions in third currency)
8. the more you will hold you arb portfolio the more it will lose arb profit due to negative interest on all 3 currencies.
9. I have reinvented this wheel in 2005 and even have written arbitrage robot for Oanda, and it works, but as you send market orders delays in their execution some time kill all advantage and you should exit with paying 3 spreads. So you will get 50%/50% good fill of you arb market orders. This is caused also by fact that Oanda refresh rates only every 2,5 seconds so often you are late to capture arb opportunity at the very beginning of it.
10. This idea will not work for retail traders, but hedge funds explore it very much due to presence of good infrastructure and fast execution.

Try to link this idea to 3 brokers with one of them being Oanda.

Regards

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Postby Gert Frobe » Thu Feb 08, 2007 5:07 pm

FoxerFX, when you said "Try to link this idea to 3 brokers with one of them being Oanda." you were right on target.

thanks,

ben

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Postby pipscalper » Fri Feb 09, 2007 2:16 am

Stevensign wrote:
pipscalper wrote:Wow, this discussion really quieted down... What's going on?

eagles or anybody, could you tell me how you combine 3 currencies into one line (like the blue line on this chart)? Can it be done on MT4 platform? Any suggestions would help a lot! Thanks.

eagles wrote:

I wrote an indicator that combines up to four currencies. Identify the currencies you're interested in, the number of lots per currency, entry prices and buy or sell and I'll show you the resulting profit in dollars or percent.

Stevensign, thank you for taking time to respond.

I'd like to have a live one line chart that combines the following currencies:
Short 100K EUR/USD
Short 100K USD/CHF
Long 100K EUR/CHF

It's the same one line chart that Michael K. has on the first page of this topic. It has 3 currency pairs combined into one line moving between +1 and -1. Can it be done live on MT4 charts or some other charts?

Thank you again.

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Postby FoxerFX » Fri Feb 09, 2007 9:12 am

pipscalper wrote:
Stevensign wrote:
pipscalper wrote:Wow, this discussion really quieted down... What's going on?

eagles or anybody, could you tell me how you combine 3 currencies into one line (like the blue line on this chart)? Can it be done on MT4 platform? Any suggestions would help a lot! Thanks.

eagles wrote:

I wrote an indicator that combines up to four currencies. Identify the currencies you're interested in, the number of lots per currency, entry prices and buy or sell and I'll show you the resulting profit in dollars or percent.

Stevensign, thank you for taking time to respond.

I'd like to have a live one line chart that combines the following currencies:
Short 100K EUR/USD
Short 100K USD/CHF
Long 100K EUR/CHF

It's the same one line chart that Michael K. has on the first page of this topic. It has 3 currency pairs combined into one line moving between +1 and -1. Can it be done live on MT4 charts or some other charts?

Thank you again.


Short 100K EUR/USD
Short 100K USD/CHF
Long 100K EUR/CHF

if you will open above positions you will have exposure on USD currency and you arb portfolio will not be hedged and P/L of this potfolio will not move from -1 to +1

Try to make some calculation on the paper if you do not want to lose money.

Regards

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