FPI - Fractional Product Inefficiency: The Impeccable Hedge

NeoTicker indicators

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michal.kreslik
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Postby michal.kreslik » Sat Feb 17, 2007 1:06 am

jfx2 wrote:
Michal, if and when you finish the Neoticker "data/order server" or interface for neoticker, could you PM me, I would be interested in purchasing said interface or a license. Also, retail traders usually do not get the roll interest from CurreneX access, the White Label provider usually ("takes care") of that, in other words no interest paid or taken..


XSTEK



XSTEK, Just to be clear for others reading this....CurreneX is a software platform connecting buyers and sellers. They don't pay or charge interest because they are not clearing or holding any contracts. CurreneX is not a solution to the interest rate problem with holding FPI positions, which is not even a problem if its accounted for in the strategy. If you want to trade on the curreneX system you will need a brokerage relationship which will charge/pay interest when they clear/roll your contracts.


Precisely. A quote from the CurreneX website that explains it all:

Currenex connects more than 70 global banks to a superior electronic trading network, making Currenex one of the deepest liquidity pools in Forex.


Michal

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Postby xstek » Sun Feb 18, 2007 12:45 am

Hello, the key words are the following, "retail traders usually" and "roll interest from currenex access". Maybe I should have said, "roll interest either given or paid to or from your White Label Provider, while accessing the white label providers liquidity hub containing the white label providers prime brokers". Wow I think that covers it :) Michal, the liquidity is only as deep as the hub you are in.

xstek

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michal.kreslik
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Postby michal.kreslik » Sun Feb 18, 2007 2:12 am

xstek wrote:Michal, the liquidity is only as deep as the hub you are in.


Definitely. the "making Currenex one of the deepest liquidity pools in Forex" part of the sentence is their sales pitch.

Michal

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Postby BurgerKing » Sun Feb 25, 2007 4:08 am

From what I can comprehend in this FPI, the true application is in Scalping. When you see the FPI below or above 1.00, take the position, wait till the FPI goes the otherside then close the positions.


If not for scalping, here is my problem - wishing FPI could solve it.

I want to Hedge a Long GBPNZD. Initially, I have computed that I should do:

Long 1 Lot GBPNZD
Short 1 Lot GBPUSD
Long 2.77 Lot NZDUSD (2.77 being the current GBPNZD rate)

My numbers are based on the following:
Long GBPNZD = Buy GBP100000, Sell NZD277920
Short GBPUSD = Sell GBP100000, Buy USD196300
Long 2.77 NZDUSD = Buy 2.77xNZD70620m Sell USD196174USD
USD almost evens out implying a proportial hedge

This assumes that GBPUSD stays 1.9630 (sideways to bearish)... and if this go bullish, my hedge with go negative.

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Postby Stevensign » Sun Feb 25, 2007 8:49 am

BurgerKing wrote:From what I can comprehend in this FPI, the true application is in Scalping. When you see the FPI below or above 1.00, take the position, wait till the FPI goes the otherside then close the positions.


If not for scalping, here is my problem - wishing FPI could solve it.

I want to Hedge a Long GBPNZD. Initially, I have computed that I should do:

Long 1 Lot GBPNZD
Short 1 Lot GBPUSD
Long 2.77 Lot NZDUSD (2.77 being the current GBPNZD rate)

My numbers are based on the following:
Long GBPNZD = Buy GBP100000, Sell NZD277920
Short GBPUSD = Sell GBP100000, Buy USD196300
Long 2.77 NZDUSD = Buy 2.77xNZD70620m Sell USD196174USD
USD almost evens out implying a proportial hedge

This assumes that GBPUSD stays 1.9630 (sideways to bearish)... and if this go bullish, my hedge with go negative.


I was hoping to show you a graph of your hedge but unfortunately none of my MT4 platforms have the GBPNZD. :(

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Postby BurgerKing » Sun Feb 25, 2007 3:29 pm

Lets try GBP, USD and JPY instead.

1 Long GBPJPY
1 Short GBPUSD
1.9633 Short USDJPY (1.9633 being the current GBPUSD price)

How efficient/stable is this hedging?

I personally do not agree doing a 3 way hedge using 1/1/1 lot ratio.

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michal.kreslik
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Postby michal.kreslik » Sun Feb 25, 2007 9:43 pm

BurgerKing wrote:Lets try GBP, USD and JPY instead.

1 Long GBPJPY
1 Short GBPUSD
1.9633 Short USDJPY (1.9633 being the current GBPUSD price)

How efficient/stable is this hedging?

I personally do not agree doing a 3 way hedge using 1/1/1 lot ratio.


Burger,

there are two ways on how to build an FPI ring out of those three pairs and there are four ways on how to calculate their FPI:



Michal

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Postby Stevensign » Sun Feb 25, 2007 10:40 pm

BurgerKing wrote:Lets try GBP, USD and JPY instead.

1 Long GBPJPY
1 Short GBPUSD
1.9633 Short USDJPY (1.9633 being the current GBPUSD price)

How efficient/stable is this hedging?

I personally do not agree doing a 3 way hedge using 1/1/1 lot ratio.


I've attached three charts showing your hedge. A weekly, one hour and a 5 minute chart. They are using 10, 10, & 19.63 mini-lots which gives $10 per PIP. My charts show actual net dollars profit or loss. So for example on my 5 minute chart the numbers at the right go from +74.72 to -96.31 which represents a range of +7.5 to -9.6 PIPs or a total of 17 PIPs.

The longer term charts show a similar, well hedged, range.

I believe the big spikes on the longer term charts are errors in the metatrader data.
Attachments
gbpusdjpy perfect hedge w1.gif
gbpusdjpy perfect hedge w1.gif (34.75 KiB) Viewed 765 times
gbpusdjpy perfect hedge h1.gif
gbpusdjpy perfect hedge h1.gif (71.01 KiB) Viewed 765 times
gbpusdjpy perfect hedge m5.gif
gbpusdjpy perfect hedge m5.gif (51.71 KiB) Viewed 765 times

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michal.kreslik
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Postby michal.kreslik » Sun Feb 25, 2007 11:49 pm

Someone has just asked me if I could share the excel file that I used to make the FPI ring calculations two posts above.

Of course I can, attached you will find it.

Michal
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FPI calc.zip
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Postby BurgerKing » Mon Feb 26, 2007 12:56 am

Michal,

based on this thread, we BUY/SELL when FPI is way off 1.00; in the above post, there are 4 FPI figures - two per FPI ring.

Question is: from the above 4 FPI numbers, how do I place my positions?
When do I go Long GBPJPY et all? And when do I go short GBPJPY et all?

All I know is go long when FPI is very below 1 and short when its very above 1. But the computation is much more "complex" when spread is taken into consideration.

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