FPI - Fractional Product Inefficiency: The Impeccable Hedge

NeoTicker indicators

Moderator: moderators

User avatar
michal.kreslik
rank: 1000+ posts
rank: 1000+ posts
Posts: 1032
Joined: Sat May 13, 2006 2:40 am
Reputation: 0
Location: Monte Carlo, Monaco
Real name: Michal Kreslik
Gender: Male
Contact:

Postby michal.kreslik » Wed Jun 13, 2007 8:57 am

cruzader wrote:do you think a non-interest account broker will allow you to do that (to hold the ring long enough to make profit), Michal?


That's one of the questions I would like to have answered, too :)

As I said many times, the success of FPI is dependent on your broker not being a bandit. Brokers who don't charge/pay rollovers are probably bandits bacause they manipulate the market reality for you. And if someone is manipulating the reality for business reasons, he's going to do it to your disadvantage.

Michal

Please add www.kreslik.com to your ad blocker white list.
Thank you for your support.

hawaiiantrader
rank: <50 posts
rank: <50 posts
Posts: 10
Joined: Mon Jun 11, 2007 1:58 pm
Reputation: 0
Gender: None specified

Postby hawaiiantrader » Fri Jun 15, 2007 11:53 pm

there is a mutual relationship between the above fractions. We can even derive the third fraction?s value from the first two:
a / b = 2.5
b / c = 2
c / a = ?
c / a = 1 / ((a / b) * (b / c))


Michal,
I am very much intrigued by this article of yours; in the process of trying to understand it - I am stumped by where you get the general formula on the last line, AS A STARTING POINT. [ c / a = 1 / ((a / b) * (b / c)) ] Is this a generally known formul? if so can you explain it's derivation, or point out a resource that will?

At my level of algebra, I can approach the problem starting with: a=b*2.5 ; and c=b/2 ; therefore, by substitution, c/a =(b/2)/(b*2.5) = b/(b*2.5*2) = 1/2.5*2 = 1/5 = .2

Unfortunately - my way doesn't lead me (yet/easily) to your extensions in the rest of the article - in other words, I like your formula as a starting point - but I don't know how it is derived. Please educate me.
Thanks
Makaha

User avatar
michal.kreslik
rank: 1000+ posts
rank: 1000+ posts
Posts: 1032
Joined: Sat May 13, 2006 2:40 am
Reputation: 0
Location: Monte Carlo, Monaco
Real name: Michal Kreslik
Gender: Male
Contact:

Postby michal.kreslik » Fri Jun 22, 2007 1:21 pm

hawaiiantrader wrote:
there is a mutual relationship between the above fractions. We can even derive the third fraction?s value from the first two:
a / b = 2.5
b / c = 2
c / a = ?
c / a = 1 / ((a / b) * (b / c))


Michal,
I am very much intrigued by this article of yours; in the process of trying to understand it - I am stumped by where you get the general formula on the last line, AS A STARTING POINT. [ c / a = 1 / ((a / b) * (b / c)) ] Is this a generally known formul? if so can you explain it's derivation, or point out a resource that will?

At my level of algebra, I can approach the problem starting with: a=b*2.5 ; and c=b/2 ; therefore, by substitution, c/a =(b/2)/(b*2.5) = b/(b*2.5*2) = 1/2.5*2 = 1/5 = .2

Unfortunately - my way doesn't lead me (yet/easily) to your extensions in the rest of the article - in other words, I like your formula as a starting point - but I don't know how it is derived. Please educate me.
Thanks
Makaha


Makaha,

it's very simple. The fractions are complementary.

By simple fractional reduction you get:

(a/b) * (b/c) * (c/a) = x

(1/1) * (1/1) * (1/1) = x

x = 1

(a/b) * (b/c) * (c/a) = 1

(c/a) = 1 / ((a/b) * (b/c))

Michal

hawaiiantrader
rank: <50 posts
rank: <50 posts
Posts: 10
Joined: Mon Jun 11, 2007 1:58 pm
Reputation: 0
Gender: None specified

Postby hawaiiantrader » Fri Jun 22, 2007 6:08 pm

Michal,
Thanks for helping me out - I know it should be simple. I'm not sure what fractional reduction is, technically, but I think you are saying that one may, in the abstract, decide to multiply fractions together and look at the product -- (just like if I had 3 numerals I could decide to multiply them together and look at the product) and of course, as you have shown, the numerators cancel the denominators and you get one - which leads to your equation.
Thanks again for your help.

Makaha

Annu
rank: <50 posts
rank: <50 posts
Posts: 18
Joined: Mon Mar 19, 2007 12:25 pm
Reputation: 0
Gender: None specified

Postby Annu » Tue Jul 10, 2007 5:51 pm

Michael, i am curious, have you archieved any profits with this method? I think your strategy is sound, but i somehow doubt the viability to implement it for retail traders (internet latency for example). Another thing is, banks hate to be picked off. I know its possible on Currenex that a bank can put you on their "s**t list" (prohibit trades against counterparty #xy). Its probably possible on other multibank-venues too.

One way to eliminate the latency-issue would be to host your system at a brokerage. MB Trading i.e. offers that service. That would put you only a few milliseconds away from their ECN.

Good luck,
A.

p.s.: im curious how this turns out, altho i wouldnt try it myself. I hope you post some updates on your progress.

Please add www.kreslik.com to your ad blocker white list.
Thank you for your support.

User avatar
Mr. H
rank: <50 posts
rank: <50 posts
Posts: 5
Joined: Fri Jul 06, 2007 5:05 pm
Reputation: 0
Gender: None specified

FPI Like Indicator for Amibroker

Postby Mr. H » Mon Jul 16, 2007 7:12 pm

Here is an FPI (Fractional Product Inefficiency) Like Indicator
for Amibroker:
Please note that this indicator oscillates around ZERO Line
instead of the original indicator which may oscillate around
the Value ONE Line:

//////////////////////////////////////////////////////////////////////////////////////

Spread = Foreign( "GBP/JPY", "ASK") - Foreign( "GBP/USD", "BID") *
Foreign( "USD/JPY", "BID");
Plot( spread, "spread", colorRed);

//////////////////////////////////////////////////////////////////////////////////////
Last edited by Mr. H on Fri Jul 20, 2007 4:41 pm, edited 1 time in total.

User avatar
michal.kreslik
rank: 1000+ posts
rank: 1000+ posts
Posts: 1032
Joined: Sat May 13, 2006 2:40 am
Reputation: 0
Location: Monte Carlo, Monaco
Real name: Michal Kreslik
Gender: Male
Contact:

Re: FPI Like Indicator for Amibroker

Postby michal.kreslik » Tue Jul 17, 2007 5:10 pm

Mr. H wrote:Here is an FPI (Fractional Product Inefficiency) Like Indicator
for Amibroker:
Please note that this indicator oscillates around ZERO Line
instead of the original indicator which may oscillate around
the Value ONE Line:

//////////////////////////////////////////////////////////////////////////

spread = Foreign( "GBPJPY", "ASK") - Foreign( "GBPUSD", "BID") *
Foreign( "USDJPY", "BID");
Plot( spread, "spread", colorRed);


Hello, Mr. H,

apart from their demo, I have never been using AmiBroker, but it seems you have an error in your formula. If you would like to build an FPI indicator from the above pairs that would oscillate around zero, you've basically got 4 choices:
  • (Ask of GBPJPY * (1 / Bid of USDJPY) * (1 / Bid of GBPUSD)) - 1
  • ((1 / Ask of GBPJPY) * Bid of USDJPY * Bid of GBPUSD) - 1
  • (Bid of GBPJPY * (1 / Ask of USDJPY) * (1 / Ask of GBPUSD)) - 1
  • ((1 / Bid of GBPJPY) * Ask of USDJPY * Ask of GBPUSD) - 1

Michal

User avatar
michal.kreslik
rank: 1000+ posts
rank: 1000+ posts
Posts: 1032
Joined: Sat May 13, 2006 2:40 am
Reputation: 0
Location: Monte Carlo, Monaco
Real name: Michal Kreslik
Gender: Male
Contact:

Postby michal.kreslik » Tue Jul 17, 2007 6:02 pm

Annu wrote:Michael, i am curious, have you archieved any profits with this method? I think your strategy is sound, but i somehow doubt the viability to implement it for retail traders (internet latency for example). Another thing is, banks hate to be picked off. I know its possible on Currenex that a bank can put you on their "s**t list" (prohibit trades against counterparty #xy). Its probably possible on other multibank-venues too.

One way to eliminate the latency-issue would be to host your system at a brokerage. MB Trading i.e. offers that service. That would put you only a few milliseconds away from their ECN.

Good luck,
A.

p.s.: im curious how this turns out, altho i wouldnt try it myself. I hope you post some updates on your progress.


Hello, Annu,

my automated FPI framework is not done yet as I'm also working on a couple of other projects as well. So me and the clients who are getting the FPI framework are going to trade it live as soon as it's finished.

I don't know whether a bank can addresedly put you on an "unwanted" list on Currenex, but I know that they can say "hey, Currenex, we at Lehman Brothers don't like your customer #456789. If this guy will be active at your ECN next month, we'll stop providing a liquidity to Currenex."

That might happen and this way, you actually don't care about what the Lehman Bros. guy thinks as there are many other liquidity providers available at that ECN, but you might get 100% legally kicked out of Currenex by Currenex itself as the Currenex would not want to lose the bank's business in return for getting yours. They are not obliged to provide a service to you by a constitution :)

The good news is that by contract, these multibank platforms (Hotspot, FXAll, Currenex, FXInside etc.) should never disclose the identity of the customer that's actually behind the ID. So although your ECN ID might not be particularly the favorite one at some banks, they should not come to know that it's the Joe Trader behind the ID, thus they should not be able to send a couple of beefy fellows to your address who would discuss this business matter in a more detailed way with you on a personal basis 8)

Putting a server running an FPI framework closer to the broker should not harm anyone, but still, as you were talking about MBT (EFX), I sort of doubt they are being provided the liquidity directly by the banks. The more probable scenario is that EFX is getting liquidity from one or more of the multibank platforms and also, one of the banks might be doing a prime brokerage for EFX as a backup.

That means that at the end of the day, your orders will save a couple of ms on the way to EFX's ECN, but they will have to go thru the multibank platform and then to the bank. Of course, this is only true if you don't hit a price of some non-bank subject directly on the ECN (either on EFX's internal ECN or on the multibank platform's ECN). In such a case, you are lucky as your order will be processed more swiftly. But that would come at a cost of probably not having the highest liquidity possible as some "ordinary" ECN participant is simply not bidding or offering at the same size as the banks are.

One of the possible solutions would be to use a broker that's directly connected to the bank platforms, or rather, to their APIs. IB is such an example, although for some strange reason there are better prices to be seen on EFX on some, mainly the non-primary pairs. That's why I would give EFX a shot with FPI nevertheless.

Michal

User avatar
Mr. H
rank: <50 posts
rank: <50 posts
Posts: 5
Joined: Fri Jul 06, 2007 5:05 pm
Reputation: 0
Gender: None specified

Re: FPI Like Indicator for Amibroker

Postby Mr. H » Tue Jul 17, 2007 6:09 pm

michal.kreslik wrote:
Mr. H wrote:Here is an FPI (Fractional Product Inefficiency) Like Indicator
for Amibroker:
Please note that this indicator oscillates around ZERO Line
instead of the original indicator which may oscillate around
the Value ONE Line:

//////////////////////////////////////////////////////////////////////////

spread = Foreign( "GBPJPY", "ASK") - Foreign( "GBPUSD", "BID") *
Foreign( "USDJPY", "BID");
Plot( spread, "spread", colorRed);


Hello, Mr. H,

apart from their demo, I have never been using AmiBroker, but it seems you have an error in your formula. If you would like to build an FPI indicator from the above pairs that would oscillate around zero, you've basically got 4 choices:
  • (Ask of GBPJPY * (1 / Bid of USDJPY) * (1 / Bid of GBPUSD)) - 1
  • ((1 / Ask of GBPJPY) * Bid of USDJPY * Bid of GBPUSD) - 1
  • (Bid of GBPJPY * (1 / Ask of USDJPY) * (1 / Ask of GBPUSD)) - 1
  • ((1 / Bid of GBPJPY) * Ask of USDJPY * Ask of GBPUSD) - 1
Michal

Hi Michal,

Thanks for your reply.
I am trying Amibroker Demo as well.
My Indicator measures the difference between GBP/JPY and its components
"GBP/USD * USD/JPY"
I hope we all agree on the following formula:
A/B * B/C * C/A = 1 or
A/B * B/C = A/C or
A/C - (A/B * B/C) = 0 and If A = GBP , B= USD and C=JPY then
GBP/JPY - (GBP/USD * USD/JPY) = 0
So if we compare the price of GBP/JPY to its components
(GBP/USD * USD/JPY) and see if the difference is >0 or <0
if (GBP/JPY - its components) > 0 then it is selling opportunity for GBP/JPY
and a buying opportunity for the components at same time.
The reverse is true if (GBP/JPY - its components) is < 0

Let me know if the above makes sense as I am able to see the indicator
fluctuating above and under zero all the time.
Last edited by Mr. H on Sat Jul 21, 2007 2:31 pm, edited 1 time in total.
Keep It Simple,

Mr. H

User avatar
michal.kreslik
rank: 1000+ posts
rank: 1000+ posts
Posts: 1032
Joined: Sat May 13, 2006 2:40 am
Reputation: 0
Location: Monte Carlo, Monaco
Real name: Michal Kreslik
Gender: Male
Contact:

Re: FPI Like Indicator for Amibroker

Postby michal.kreslik » Tue Jul 17, 2007 6:36 pm

Mr. H wrote:Hi Michal,

Thanks for your reply.
I am trying Amibroker Demo as well.
My Indicator measures the difference between GBP/JPY and its components
"GBP/USD * USD/JPY"
I hope we all agree on the following formula:
A/B * B/C * C/A = 1 or
A/B * B/C = A/C or
A/C - (A/B * B/C) = 0 and If A = GBP , B= USD and C=JPY then
GBP/JPY - (GBP/USD * USD/JPY) = 0
So if we compare the price of GBP/JPY to its components
(GBP/USD * USD/JPY) and see if the difference is >0 or <0
if (GBP/JPY - its components) > 0 then it is selling opportunity for GBP/JPY
and a buying opportunity for the components at same time.
The reverse is true if (GBP/JPY - its components) is >0

Let me know if the above makes sense as I am able to see the indicator
fluctuating above and under zero all the time.


Sure, that makes perfect sense. I just thought you wanted to display the FPI value. As you are not charting the FPI value, but rather the difference between the quote and its composite. Which is ok if you desire so.

Michal

Please add www.kreslik.com to your ad blocker white list.
Thank you for your support.


Return to “NeoTicker indicators”