FPI - Fractional Product Inefficiency: The Impeccable Hedge

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hawaiiantrader
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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

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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.

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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

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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

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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

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Re: (Product/Componenets) Ratio Indicator for Amibroker

Postby michal.kreslik » Thu Jul 19, 2007 9:14 am

Mr. H wrote:Hi Michal and All,

Here is GBPJPY/Components Ratio Indicator for Amibroker.
This Indicator for anyone likes the Oscillation around 1.0000
If (GBPJPY / its components) < 1.0000 then there is an opportunity
to buy GBPJPY and sell (GBPUSD * USDJPY) at the same time.
The reverse is true.

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

Spread = Foreign( "GBPJPY", "C") / (Foreign( "GBPUSD", "C") *
Foreign( "USDJPY", "C"));
Plot( spread, "spread", colorRed);

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


From your AmiBroker code, it seems like "C" translates to close, right? Which is not correct - you always ought to use appropriate Bids and Asks.

Michal

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Postby daniil » Fri Jul 20, 2007 6:06 am

Hi Michal and everybody!

i want to try to code this strategy for MBTX API because i suppose it is the fastest way to execute orders. it seems you can place non-standard lot sizes with API (not 10'000, 100'000 but 33'333 for example) - so it is the right thing that we expect from Impeccable Hedge.

Some questions:


1. why i must use Open or Close prices? or not tick data? i mean my ring calculations may begin at OnQuoteData() event from any of 3 pairs.

2. for the ECN (or continuous double auction) - what is the market price for for example BUY order? is it the current Ask? or it is the last price the order was executed?

3. for ECN i suppose we must check the available lot size also or we are afraid our order will be partially filled. Am i right?while collecting tick data many times i saw that (Bid>Ask). some times this difference is 10 (ten!!!) pips. so we can even hedge by market orders with one pair if we are lucky. the only question - what is the lot size in this situation?

4. Stupid question :) Can we use limit orders instead of market? we can even take one more pip from each pair i suppose.

BRGDS, Dan

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Postby fiberangel » Fri Jul 20, 2007 4:20 pm

daniil wrote:Hi Michal and everybody!

i want to try to code this strategy for MBTX API because i suppose it is the fastest way to execute orders. it seems you can place non-standard lot sizes with API (not 10'000, 100'000 but 33'333 for example) - so it is the right thing that we expect from Impeccable Hedge.

Some questions:


1. why i must use Open or Close prices? or not tick data? i mean my ring calculations may begin at OnQuoteData() event from any of 3 pairs.

2. for the ECN (or continuous double auction) - what is the market price for for example BUY order? is it the current Ask? or it is the last price the order was executed?

3. for ECN i suppose we must check the available lot size also or we are afraid our order will be partially filled. Am i right?while collecting tick data many times i saw that (Bid>Ask). some times this difference is 10 (ten!!!) pips. so we can even hedge by market orders with one pair if we are lucky. the only question - what is the lot size in this situation?

4. Stupid question :) Can we use limit orders instead of market? we can even take one more pip from each pair i suppose.

BRGDS, Dan


Dan,
1. I also use OnQuoteData() event to calculate the FPI for each firing of the event (this way you get up-to-the-moment FPI number).
2. I use last Ask
3. I don't check for the available lot size because unless you are doing HUGE volumes, it will not matter. I have had many partial fills and most of them are at the same price anyway.
4. This has been answered here before. Both have positives and negatives. In my personal experience, I get signals in fast markets, but those very same fast markets create a lot of slippage. So you are either risking getting filled AND slipped, or NOT filled at all with limit order. The choice is yours.

Also, as a side note. I think your connection latency is a HUGE factor in this strategy. MBT does offer hosting at their data center though so it should be considered if you are serious about it. I also am starting to think that MBT (as much as I like them) may not be a perfect broker for any high frequency trading. I hear that their FIX interface is MUCH faster, but it's a whole new beast to take on.

Good luck,

Max

P.S.
The answers to your questions are my own thoughts/observations and they could in theory be argued.

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Postby daniil » Sat Jul 21, 2007 12:52 am

Hi Max!

as i understood you are familiar with MBTX API. would you tell me if "price vs speed" parameter is usefull while placing the orders for this strategy.

i suppose you already created the trading bot for this impeccable hedge. what's the perfomance of it?

P.S. i did not find any FIX at MBTX. only the article where they say that their API is FIX compliant. would you give me a link? :oops:

BRGDS, Dan

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Postby fiberangel » Sat Jul 21, 2007 3:43 pm

daniil wrote:Hi Max!

as i understood you are familiar with MBTX API. would you tell me if "price vs speed" parameter is usefull while placing the orders for this strategy.

i suppose you already created the trading bot for this impeccable hedge. what's the perfomance of it?

P.S. i did not find any FIX at MBTX. only the article where they say that their API is FIX compliant. would you give me a link? :oops:

BRGDS, Dan


- I can't answer "price vs speed" question as I haven't tried that. You can experiment with it and let us know what you find.
- As I said in the previous post, I get signals in fast markets. This is something that you have to experiment with.
- http://www.mbtrading.com/MbtFIX.asp

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