richie wrote:Hi, I just reached this long thread. Michal, what FPI range do you use in order to open a trade or close ? is it 0.9998 - 1.0002 or else? and how many total pips would you expect to gain from the range? is it feasible despite the fact that EFX charges commission?

Hi, richie,

first of all; only the

absolute difference between the opening FPI and closing FPI is relevant. Also, the FPI values don't technically fluctuate around 1 in real life as you can see here:

http://kreslik.com/forums/viewtopic.php?p=2636i#2636
Thus, the answer to your first question is that I first need to know what is the distribution of the FPI values

for a given FPI ring in particular and then I can assess what is the FPI values range that I want to use for the opening/closing of this FPI ring.

In my fully automated FPI framework, written in C# for NeoTicker, the framework client is given an option to gradually choose between

frequent FPI arbitrages with lower average outcome or

less frequent FPI arbitrages with higher average outcome. There are pros and cons to both of these options. You should implement this in your solution as well.

Your question concerning the pips cannot be answered by using the term "pips". Forex traders often tend to think in pips as it's the most common way on how to express the

price difference. The truth is that a "pip" is being replaced by a "pipette" when there are quotes available in fractions of a pip (typically 1/10 of a pip) and also, for some pairs, it's difficult to say what a pip really is. Let's take USD/CZK. The current quote is 17.3660. Can you tell me, what on earth is the value of a USD/CZK pip? Is it 0.01? Or 0.0001?

For this and other reasons, I'm using almost exclusively the

ppm (parts per million) measure instead in my calculations. With ppm, you can represent the price differences for various fx pairs in a

comparable fashion. Example: ten pips range of EUR/USD trading between 1.4500 and 1.4510 translates to 689.42 ppm (if we take the arithmetic mean between the 1.4500 and 1.4510 as the reference point).

Another problem with pips is that, obviously, a pip has

different values for different FX pairs when converted to your account currency. The question of how much profit

in your account currency terms can you expect from a single FPI arbitrage depends on the FX pairs used, the FPI range employed and the exchange rates between the particular arbitrage outcomes in all the FX pairs that form the FPI ring vs. your "home" (account) currency.

As you can see, the FPI concept is not for wussies

The commissions are a big obstacle for FPI indeed, but the brokers are generally willing to adjust your commissions if you are willing to trade through them

Michal