FPI - Fractional Product Inefficiency: The Impeccable Hedge

[TheRumpledOne]

I can't remember if I did or not... check the TradeStation Motherlodes.

[rosymoon0909]

Hi Michal, have you tried using this strategy arbing between different brokers at the same time. I think it is doable. Cheers.

[investor]

Michal, I am from the United States and have potential investors in your FPI idea. I have some questions I would hope you could answer and any other added details you could give to get things rolling.

1. Could you give me a simple conservative example of a weekly percentage return and or dollar amount if you had say $3,000,000 USD and access to Thomson Reuters 3000 or ICAP's EBS?

2. How is the progress of the FPI framework application?

3. Is the FPI framework stable?

4. Have you had an opportunity to do a walk forward with it through Thomson Reuters 3000 or ICAP EBS?

5. What are the expenses going through Thomson Reuters and/or ICAP?

Regards

[michal.kreslik]

Hi, investor,

thanks, but currently I'm not looking for any investors in the FPI. I'm trading other systems on the interbank platform with direct streams from almost all the major banks.

The FPI is so sensitive to the execution quality that it's not possible to trade it on the retail broker platforms (obviously), but also it's not possible to run it safely on the interbank platforms because of a wide variety of problems I've encountered there in the past 12 months or so. I could probably write a book on the various issues you have to overcome in this environment in order to make the whole trading framework reliable.

In order to run an arbitrage like FPI, it's either needed to aggregate the banks' streams directly, so that there are no free option quotes that can destabilize the whole framework, or, as you correctly stated, you need to place the orders on EBS (preferably directly within Equinix or Reuters.

I have an access to EBS and currently me and my colleagues are working on the API connection. Reuters comes next as EBS is the primary price discovery source for the most important majors.

I'm not checking kreslik.com regularly, so if you need to contact me, please use my email.

Have a great day!
Michal

[ianj]

As michal said it can/does work but depends on accurate and timely execution - we use a triangular arbitrage variation but only need one half (opening positions) because our broker nets positions for us automatically. I believe goldman's tied up the easy stuff some years ago so now you must be more creative to get the half pip advantage needed to bring it into positive p&l On a good day it can earn but it still has value to drive trading volumes up (and hence brokerage fees down) even if it trades flat overall. Co-location and trading across different platforms helps but you need a broker to net positions or have some creative position management or netting arrangement of you own to make that fly.

Have never tried it on a retail platform and would even be reluctant to attempt it on a bank platform because of "last look" techniques spoiling the broth. The main reason EBS/Reuters work is :
1. They are anonymous - its not easy to NOT deal with you
2. They have fast and reliable execution
3. They are still largely the price discovery leaders in their respective currency specialisations

Other institutional platforms are more difficult because of the mix of auto execution and last look counterparties. (Currenex especially) HotspotI is still largely auto-execution - might be do-able, but you'd better be located right up its jacksy and using ITCH.

It is also significant the order in which you place the orders. One leg of the triangle will be more "out of position" than the others and that is the gap that might close first - find out which it is! Sometimes the cross (e.g. EUR/GBP) is independantly traded in its own right rather than the primary's (EUR/GBP-USD) as dependent on the time zone the cross is maintained independently or sometimes crossed from the other 2 legs.

One of my roles has been to write software to manage the transition between independent and generated crosses on a BIG bank's pricing engine - its matters !

PS Any thoughts on EBS going fractional pricing and sub 1m in pretty soon - we'll see Reuters moving next - should be interesting !

If you are creative/lucky you MIGHT get Reuters/EBS access for nearer to $500k, but only just (it used to be less but alas - no more !) Keep in mind EBS/Reuters minimum trade sizes are 1m (not 100k) and institutional leverage is often only 10:1

PS I am a software developer working on institutional pricing engines and proprietary high frequency trading systems

[ajaymein]

oops wrong thread

[cwitts]

Hello Michal,
I?m sad to see that you have spent so much time in this FPI. I wish we could have met sooner. In 2001 I designed a very interesting triangular arbitrage system in excel. I got outside quotes and placed the orders by phone. My trades had at least 5 or 6 legs and at the end, if I end up positive I was happy. Sometimes I had to wait couple of seconds for it to turn positive and place the closing leg. I turned $150,000 into more than a $1,000,000 in less than 2 years. I was 27 years old, spent more than $200,000 in Las Vegas, had a beautiful boat, Mercedes and bachelor pad to die for. I was doing this until 2003 when my bucket shop broker ran away with a lot of my money.
I took a break, then opened an account with Refco and they were gone too. I decided to learn some other things in life, until Triangular Arbitrage came to mind again in 2008. The only thing was that I didn?t want to think, calculate manually or place trades by hand. So I created what is literally a money machine.
It calculates every Triangular Arbitrage available in the world real-time and places the orders that are only profitable. With some slight adjustments it can do the same thing for FPI (although I am not a firm believer of FPI). Slippage is horrible but manageable. A very interesting fact is that in all the complexities, thousands of combinations (rings) and millions of calculations per second, my algorithm is so simple that it can run in any laptop with XP and Excel 2003. The largest number of combinations (rings) placed I have seen totally executed and confirmed in a second were 4 (12 separate trades). I love Currenex and the Fix Gateway!
The worst thing about this is that no brokerage house wants or can?t deal with me and I have nowhere to hook my system.
Again, we should have met before; I would have saved you a lot of headaches.
Thank you for reading such a long post but I deserve it, I found your thread last night I didn?t even skipped a page.
If you have any idea, let me know!

PS. Where is bitchy?

[cwitts]

Hello Michal,
I?m sad to see that you have spent so much time in this FPI. I wish we could have met sooner. In 2001 I designed a very interesting triangular arbitrage system in excel. I got outside quotes and placed the orders by phone. My trades had at least 5 or 6 legs and at the end, if I end up positive I was happy. Sometimes I had to wait couple of seconds for it to turn positive and place the closing leg. I turned $150,000 into more than a $1,000,000 in less than 2 years. I was 27 years old, spent more than $200,000 in Las Vegas, had a beautiful boat, Mercedes and bachelor pad to die for. I was doing this until 2003 when my bucket shop broker ran away with a lot of my money.
I took a break, then opened an account with Refco and they were gone too. I decided to learn some other things in life, until Triangular Arbitrage came to mind again in 2008. The only thing was that I didn?t want to think, calculate manually or place trades by hand. So I created what is literally a money machine.
It calculates every Triangular Arbitrage available in the world real-time and places the orders that are only profitable. With some slight adjustments it can do the same thing for FPI (although I am not a firm believer of FPI). Slippage is horrible but manageable. A very interesting fact is that in all the complexities, thousands of combinations (rings) and millions of calculations per second, my algorithm is so simple that it can run in any laptop with XP and Excel 2003. The largest number of combinations (rings) placed I have seen totally executed and confirmed in a second were 4 (12 separate trades). I love Currenex and the Fix Gateway!
The worst thing about this is that no brokerage house wants or can?t deal with me and I have nowhere to hook my system.
Again, we should have met before; I would have saved you a lot of headaches.
Thank you for reading such a long post but I deserve it, I found your thread last night I didn?t even skipped a page.
If you have any idea, let me know!

PS. Where is bitchy?

[madar]

Using EBS as the data exchange, who would you recommend as the best broker for FPI? JPMorgan? Citi? Barclays?

[noone22]

I turned $150,000 into more than a $1,000,000 in less than 2 years

If you know the receipe of turning $150K into 1 mil,
why not to repeat it?

Or was it a once-off rob-n-run receipe?

By the way, could you share the receipe
(at least as a general idea).