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?
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:
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