FPI - Fractional Product Inefficiency: The Impeccable Hedge

NeoTicker indicators

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ryan
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Postby ryan » Thu Oct 19, 2006 10:37 am

Three more thoughts on the the FPI EA. Forgive slips in terminology or application. I'm quite new to this.

1. Hedge the Hedge

As Michal has helpfully explained the methodology is relative, ie. if we reverse the BUY-BUY-SELL and SELL-SELL-BUY the pairs in the same way the FPI equation will continue to hold.

With this in mind, as we develop an Expert to auto-trade this, why don't we hedge the trades for added security?; ie:

Trade Set 1 (3 pairs): FPI_Open: Buy-Buy-Sell, FPI_Close: Sell-Sell-Buy
Trade Set 2 (3 pairs): FPI_Open: Sell-Sell-Buy, FPI_Close: Buy-Buy-Sell

Although the opening trades of Trade Set #1 and #2 can't be executed at the same time (the FPI is either >1 or <1 at any time!) it is likely to be possible to execute them shortly thereafter.

So, regardless of what any the pairs do we've got orders placed that therefore not only hedge each pair against another (in the three-way hedge) but also against themselves (as we will say Buy Pair #1 in Trade Set #1, and Sell Pair #1 in Trade Set #2).

2. Overweight at Rollover

Is it possible or indeed practical and worthwhile to attempt to overweight interest bearing currencies (hold more to maximise interest accured, minimise payable) at rollover? This may I presume exiting trades shortly before rollover and holding interest bearing currencies. Although the FPI can be traded 24 hours is the something to consider during the rollover?

3. High Frequency Trading Systems

This looks like a high frequency (made trades), low risk (providing the execution of trades at the correct tick can be organised) and low return per trade system. High freqency trading models would typically lend themselves to brokerages would offer pip-based commissions (eg, 0.5/1 pip) per trade for referrals. However, it seems these brokers have wider spreads.

It is paramount for the FPI system to succeed that spreads are tight and orders executed simulateously and instantly. I presume therefore that incremental revenue through collaborating on with referral programs is actually counter-productive?


Ryan

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michal.kreslik
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Postby michal.kreslik » Thu Oct 19, 2006 10:49 am

davidf wrote:
There’s money waiting to be made with FPI

The FPI might be used:
directly for trading the FPI extremes (explained above), or
to predict the behavior of one of the FX symbols in ring


a many forum reder speaks abou a first point FPI. Can you morewidely describe the secont part FPI > using it for prediction movemen one of three pairs?


Hi, David,

it's quite simple. With three FX symbols in ring, let's say your technical analysis (trendlines, channels, fibonaccis, a private interview with Mr. Bernanke's wife :), whatever) reveals the direction of the first two pairs in a ring.

Then if you project your forecast into the future, you get a particular intersection of time and price for the two pairs in ring. Then you simply calculate the projected price value of the third FX symbol in ring at that particular time.

It's no magic.

Or is it? :D

Michal

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Postby michal.kreslik » Thu Oct 19, 2006 11:04 am

ryan wrote:1. Hedge the Hedge


No, "hedging" the already hedged FPI position wouldn't yield anything save added overhead in this respect. The FPI value is the same both ways. By opening the Impeccable Hedge in the opposite direction you would have a second, independent FPI trade.

ryan wrote:2. Overweight at Rollover


I'm currently working on adding the interest rate rollover calculation to the FPI Control Panel. This way, the FPI CP will search for the FPI ring that yields the most interest overnight. Stay tuned.

ryan wrote:3. High Frequency Trading Systems


As said above, the FPI is tradable only at a broker with low spreads and fast execution. Also, a fractional position sizing is required if you can't trade 12823 minilots at once :)

Michal

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Postby aspTrader » Thu Oct 19, 2006 11:08 am

The attached chart shows continuous, tick by tick monitoring of FPI values correctly done in NeoTicker vis-a-vis CME Futures Data.

NeoTicker supports access to historical Bid/Ask values as just another symbol and that is what is required to do this analysis correctly. If you don't already have it, eSignal provides historical bid/ask as well as last price back about 3 months.

A lot of analysis in this thread has been based on values other actual historical Bid/Ask. It's possible to come up with very misleading results if you're not using the actual historical Bid/Ask values.

If you take advantage of NeoTicker's Data Sync Superposition Style you can plot continuous FPI values for which Triangular Arbitrage opportunities arise in a time driven chart as shown in the attached chart.

One of the plots is Buy-Buy-Sell and the other is the mirror Sell-Sell-Buy.

I was wrong to suggest upthread that the CME currency futures were a good instrument to do this. Forex is better.
Attachments
NeoTickerTriangularArbitrageOpportunity.gif
Continuous Triangular Arbitrage Opportunity Display
NeoTickerTriangularArbitrageOpportunity.gif (45.14 KiB) Viewed 1739 times
Last edited by aspTrader on Thu Oct 19, 2006 11:29 am, edited 1 time in total.

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Re: Triangular Arbitrage

Postby apfx » Thu Oct 19, 2006 11:14 am

silverpike wrote:
apfx wrote:Buy: 0.7143 lot EUR/JPY (broker does the math and Banks do the rest)

There was a major error in your calculations. I want to point this out, and also address some other posts made about Metatrader.


This is what I wanted to point out too:

0.7143 Lot EUR/JPY = 71430 units EUR/JPY


Through MBtrading/EFX you can trade also in units (it has to be > 10000)
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MBTrading.png
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Postby michal.kreslik » Thu Oct 19, 2006 11:19 am

aspTrader wrote:NeoTicker supports access to historical Bid/Ask values as just another symbol and that is what is required to do this analysis "correctly".


Thanks much, aspTrader. Obviously, adding an artificial spread value to the historic Bid prices to get the Ask prices doesn't come close to having a real Bid/Ask history.

This way, the FPI will be different for one way (Buy/Buy/SellShort) and the other way (SellShort/SellShort/Buy) calculations.

I'm using EFX broker as a datafeed for NeoTicker and EFX not only doesn't provide Bid/Ask history, but the quality of its historic data is very low. So I have to manage with good old reliable Tradestation data in NeoTicker and backtest with Bid + spread for now.

Michal

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Postby aidan1970 » Thu Oct 19, 2006 11:53 am

Has anyone successfully traded FPI live? If so, what have your experiences been?

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Lot size

Postby davidf » Thu Oct 19, 2006 1:10 pm

Hi all,

for bretter understoonding calculations a lots size i created simple xls table. viz add.

DavidF
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ryan
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Postby ryan » Thu Oct 19, 2006 1:27 pm

michal.kreslik wrote:
ryan wrote:1. Hedge the Hedge


No, "hedging" the already hedged FPI position wouldn't yield anything save added overhead in this respect. The FPI value is the same both ways. By opening the Impeccable Hedge in the opposite direction you would have a second, independent FPI trade.
Michal


Forgive me :) I understand this 100%, sorry my explanation was ambigious.

I assume it is technically possible for all three pairs in a FPI hedge to move against you?

Given that we can run the FPI either in Sell-Sell-Buy or Buy-Buy-Sell 'directions', I wondered if we could run two independent FPI hedges (yes I realise neither has an effect on the other) at a time.

So if the market ran away -- in an extreme example -- in the opposite direction to our trades -- it wouldnt matter as we had two independent FPI hedges which were mirrors of each other.

Does this make sense? Or is this flawed logic, on the basis that this is actually impossible? Is it?

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Postby ryan » Thu Oct 19, 2006 1:39 pm

aspTrader wrote:A lot of analysis in this thread has been based on values other actual historical Bid/Ask. It's possible to come up with very misleading results if you're not using the actual historical Bid/Ask values.


aspTrader, this is fantastic work. Do we know what the trigger was around 15.30 on your chart? There was a big swing there.

The other thing I think is interesting about this data is that the FPI_Entry condition with FPI<1 is held for quite a while, compartively, around the 15.30 mark, whereas usually the oscillation is far quicker.

Equally, in practical trading terms, how we would trade this? Open positions continously on that big downswing and the close them out on corresponding up next upswing where FPI>1?

Thanks again for the great graph.

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