hedge forex positions with no loss

bestdarngood posted:
There is possibility for hedging 3 pairs and making a profit with the same size of lots for each pair.

bestdarngood posted:
There is possibility for hedging 3 pairs and making a profit with the same size of lots for each pair. See my attachment for this with using one of my EAs. Very possible to make money in this way. Very painful to backtest, but worth it in the end as it provides a low risk way to trade Forex.

togr posted:

bestdarngood posted:
There is possibility for hedging 3 pairs and making a profit with the same size of lots for each pair. See my attachment for this with using one of my EAs. Very possible to make money in this way. Very painful to backtest, but worth it in the end as it provides a low risk way to trade Forex.

If you use the same lot size for all pairs it will not be precise hedge.
You need to calculate lot size based on rates.

5astelija posted:

bestdarngood posted:
There is possibility for hedging 3 pairs and making a profit with the same size of lots for each pair.

I don't see the way how moving money in a circle would bring extra profits (even without considering commissions).
The ea may work on backtest due to some glitch - you don't seem to have real trading results...

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5astelija posted:

bestdarngood posted:
There is possibility for hedging 3 pairs and making a profit with the same size of lots for each pair.

I don't see the way how moving money in a circle would bring extra profits (even without considering commissions).
The ea may work on backtest due to some glitch - you don't seem to have real trading results...

bestdarngood posted:

togr posted:

bestdarngood posted:
There is possibility for hedging 3 pairs and making a profit with the same size of lots for each pair. See my attachment for this with using one of my EAs. Very possible to make money in this way. Very painful to backtest, but worth it in the end as it provides a low risk way to trade Forex.

If you use the same lot size for all pairs it will not be precise hedge.
You need to calculate lot size based on rates.

You are wrong, same lot size is correct, different lot size then skews your position in the direction of whichever pair has the most lots.

bestdarngood posted:
True that it cost you different amounts of USD for each of the 3 pairs, but it is all relative. Hard to convince someone until they try it out... If you don't trade equal lots, you will see that the pair that you have the biggest trade in will Overwhelm the other pairs.

You also need to take in account that all 3 pairs will not move the same number of pips over the same period. In the case of AUDUSD, EURUSD, and EURAUD, you will find that EURAUD generally will move MANY more pips than the other pairs.

togr posted:

bestdarngood posted:
True that it cost you different amounts of USD for each of the 3 pairs, but it is all relative. Hard to convince someone until they try it out... If you don't trade equal lots, you will see that the pair that you have the biggest trade in will Overwhelm the other pairs.

You also need to take in account that all 3 pairs will not move the same number of pips over the same period. In the case of AUDUSD, EURUSD, and EURAUD, you will find that EURAUD generally will move MANY more pips than the other pairs.

My friend,

I did try it on real account. I know how does it work.
You dont understand the logic in it.
So once more.
3 pairs hedge is working this way
You buy x lot EURUSD (Which means you buy x lot EUR and sell x*rate=y lot USD)
You sell z lot GBPUSD (Which means you sell z lot GBP and buy y lot USD)
You sell x lot EURGBP (Which means you sell x lot EUR and buy z lot GBP)

I hope I did not make mistake :)

At the end you
buy x lot EUR and sell x lot EUR = perfect hedge
sell z lot GBP and buy z lot GBP = perfect hedge
sell y lot USD and buy y lot USD = perfect hedge

Is it clear now?

This CANNOT work with the same lot size, unless all rates (EURUSD, GBPUSD, EURGBP are 1.00000).

bestdarngood posted:

togr posted:

bestdarngood posted:
True that it cost you different amounts of USD for each of the 3 pairs, but it is all relative. Hard to convince someone until they try it out... If you don't trade equal lots, you will see that the pair that you have the biggest trade in will Overwhelm the other pairs.

You also need to take in account that all 3 pairs will not move the same number of pips over the same period. In the case of AUDUSD, EURUSD, and EURAUD, you will find that EURAUD generally will move MANY more pips than the other pairs.

My friend,

I did try it on real account. I know how does it work.
You dont understand the logic in it.
So once more.
3 pairs hedge is working this way
You buy x lot EURUSD (Which means you buy x lot EUR and sell x*rate=y lot USD)
You sell z lot GBPUSD (Which means you sell z lot GBP and buy y lot USD)
You sell x lot EURGBP (Which means you sell x lot EUR and buy z lot GBP)

I hope I did not make mistake :)

At the end you
buy x lot EUR and sell x lot EUR = perfect hedge
sell z lot GBP and buy z lot GBP = perfect hedge
sell y lot USD and buy y lot USD = perfect hedge

Is it clear now?

This CANNOT work with the same lot size, unless all rates (EURUSD, GBPUSD, EURGBP are 1.00000).

But again with unequal lot sizes, the pair that has the biggest trade will command the overall gain or loss of the trade, that is what you don't understand. You are correct in that the Exposure will be weighted towards one currency, but in order for the trade to work, you need to buy/sell equal position sizes, otherwise you should just buy the one currency that is weighted heavier and not open the other trades and then save the spread costs.

5astelija posted:
Lets do more math: Buy EURUSD, sell GBPUSD, sell EURGBP 1.0 lot EACH.
Lets use the rates from previous week close:
EURUSD 1.12369
GBPUSD 1.29750
EURGBP 0.86572

From 1st trade we got +100 000€ and -112 369$

From 2nd trade we got -100 000£ and +129 750$

From 3rd trade we got -100 000€ and +86 572£

Now we add the money piles together:
100 000€ - 100 000€ = 0€
129 750$ - 112 369$ = 17 381$
86 572£ - 100 000£ = -13 428 £

We have left some dollars and owe some punds, which is the same as simply shorting GBPUSD.
Why should we short it more complicated, with 3 pairs?

bestdarngood posted:
True that it cost you different amounts of USD for each of the 3 pairs, but it is all relative. Hard to convince someone until they try it out... If you don't trade equal lots, you will see that the pair that you have the biggest trade in will Overwhelm the other pairs.

You also need to take in account that all 3 pairs will not move the same number of pips over the same period. In the case of AUDUSD, EURUSD, and EURAUD, you will find that EURAUD generally will move MANY more pips than the other pairs.

bestdarngood posted:

5astelija posted:
Lets do more math: Buy EURUSD, sell GBPUSD, sell EURGBP 1.0 lot EACH.
Lets use the rates from previous week close:
EURUSD 1.12369
GBPUSD 1.29750
EURGBP 0.86572

From 1st trade we got +100 000€ and -112 369$

From 2nd trade we got -100 000£ and +129 750$

From 3rd trade we got -100 000€ and +86 572£

Now we add the money piles together:
100 000€ - 100 000€ = 0€
129 750$ - 112 369$ = 17 381$
86 572£ - 100 000£ = -13 428 £

We have left some dollars and owe some punds, which is the same as simply shorting GBPUSD.
Why should we short it more complicated, with 3 pairs?

That is relative cost of each pair, but you have to look at the Size of Each Trade and think of them as Units.

1 lot of EURUSD is 100,000 Units
1 lot of GPBUSD is 100,000 Units
1 lot of EURGBP is 100,000 Units.

The reason your numbers don't come out equal to 0 each is because of the spread (cost of purchasing/selling a currency).

In a perfect hedge, lets say you Buy EURUSD, Sell GBPUSD, and Sell EURGBP.
So if you Buy 1 lot = 100,000 Units of EURUSD, you are Buying 100,000 lots of EUR or selling 100,000 lots of USD.
Then with GBPUSD, you would be Selling 100,000 Units of GBP and Buying 100,000 units of USD.
Then with EURGBP, you would be Selling 100,000 Units of EUR and Buying 100,000 units of GBP.
Then the overall trade would be, 0 units of all 3 currencies. That is how you need to look at it.

bestdarngood posted:
Then with GBPUSD, you would be Selling 100,000 Units of GBP and Buying 100,000 units of USD.

5astelija posted:

bestdarngood posted:
Then with GBPUSD, you would be Selling 100,000 Units of GBP and Buying 100,000 units of USD.

No, you dont get the same amount of different currencies. If eurusd rate is 2, you get 2 usd 'units' for every 1 euro 'unit' ='€'.
I wonder how you can make any strategy with such knowledge of the system.