Thread: How do you use correlations?

I stated there are not many reasons to hedge in Forex.

In case you have one, I am happy for you.

Originally Posted by ;

There are not many reasons to hedge in Forex. The sole legitimate one I can imagine is a carry trade where you are trying to catch the interest rate differential between 2 pairs. That's great if you have 6 months and are happy with a pip each day. Not to mention that you still take on some directional risk whilst doing so.

If you would like to trade Forex, decide on a pair, get a platform and trade it. Don't trade correlated pairs in reverse directions. That's plain retarded. Grow a backbone, pick a direction and go with it. If you're wrong, stop out or reverse course. Trading correlated pairs at the opposite directions only benefits your broker since you've paid twice the spread and locked yourself out of any profit.

Philmcgrew,

Joyful with a pip a day??? You do have a lot of post on this forum however I'd recommend you donate what you know rather than some bias opinion.

I have been trading for 27 years and I will post one of my commerce reports that you see. I've been in this trade since August 23, 2006. The picture would have been too large to post here so that I will put this up on a web site. My open equity is because of Friday Oct 13, 2006 is $8361. I've almost doubled my money with a Pip a Day hedge position. The interest is not too bad . Here is my site http://4xinterest.com/webpages/ratetrade.html

Originally Posted by ;

,

Happy Using a pip Daily??? You do have a lot of post on this forum however I'd suggest you donate what you know and not some bias opinion.

Here is the math for everybody to see:

First, a simple formula for calculating how much cash you make from interest rates.

Contract Size * [(Rate Difference / 100) / 365] = USD

Let us say you find great negative correlation between a long GBPJPY and brief CHFJPY. This is currently a remarkably popular hedging egy.

The interest rate for GBP is 4.75%, JPY is 0.25%, and the CHF is 1.75%, thus moving long GBPJPY produces 4.5% (4.75% - 0.25%) and concurrently going brief the CHFJPY prices you 1.5% (1.75% - 0.25%). In general, you acquire the gap between the lengthy GBPJPY and cover the brief CHFJPY rate. 4.5% - 1.5% = 3.0%

Now, plug this into the forumula (we'll use 1 standard lot):

100,000 * [(3 / 100) / 365] = USD
8.21 = USD or $8.21

The current USD pip value of this GBPJPY is $8.4 for a standard lot.

8.21 / / 8.4 = .98 pips.

I said it was 1 pip but it's actually less. Also, these are true rates. Many brokers maintain a little of this differential for themselves so it is not likely that you would realize this perfect quantity.

Math is not an opinion. It is universal and utilized by all countries.

LOL... Lets just put this one behind us... All these seem a bit off topic and not successful... Everyone here is an experienced trader and everybody probably has more experience than me. So, How about burying the hatchet, not in each other... LOL... What do ya say?

Scott

Originally Posted by ;

LOL... Lets just put this one behind us... These look a bit off topic and not productive... Everyone here is a seasoned trader and everybody probably has more experience than me. So, How about burying the hatchet, not in every other... LOL... What do ya say?

Scott

Party Pooper...:

About how to use correlations. Lets stay on topic. Thanks much

I utilize correlation all the time. I wait patiently for moderate seperation to happen between pairs such as eur/chf and gbp/chf by way of example and then in theory hedge my position by entering trades. Or you may exchange the pair eur/gbp for quite similar results.

Search for iboxpips thread. He originally got me started with that. It's a rough idea in his thread... though you may learn how to begin from it.

Good day,

I have been able to substantiate the occurrence of few correlations which are 100% reliable. But, I can say.... As pure scientific reality.... That 6-12 beers in almost any male theme will increase the beauty of ANY female subject by at least 400%.

I do not suppose that can help you on your trading efforts. But, it might save your life someday.... man. So, think before you drink.

Originally Posted by ;

Here's the math for everyone to see:

First, a very simple formula for calculating how much money you earn from interest rates.

Deal Size * [(Rate Difference / 100) / 365] = USD

Let us say you find great negative correlation between a very long GBPJPY and short CHFJPY. That is currently a remarkably popular hedging egy.

The interest rate for GBP is 4.75%, JPY is 0.25%, and the CHF is 1.75%, therefore going long GBPJPY makes 4.5% (4.75% - 0.25%) and simultaneously going short the CHFJPY prices you 1.5% (1.75% - 0.25%). Overall, you gain the gap between the long GBPJPY and pay the short CHFJPY rate. 4.5% - 1.5% = 3.0%

Now, plug this in the forumula (we will use 1 standard lot):

100,000 * [(3 / 100) / 365] = USD
8.21 = USD or $8.21

The current USD pip value of the GBPJPY is $8.4 to get a normal lot.

8.21 / 8.4 = .98 pips.

I stated it had been 1 pip but it's actually slightly less. These are true rates. Many brokers keep a little of the differential for themselves so it's unlikely that you would realize this perfect amount.

Math is not an opinion. It's universal and utilized by all nations.

Great example. Let's take this further. I don't exchange those pairs so I hope I am not too far away when I say it cost $1,000 margin for every lot at 100:1 leverage. That would mean that 6 pairs (3 pairs each) could cost $6,000 in margin. Of course at 200:1 that margin is $3,000 and also at 400:1 it's $1,500. My broker lets me set the leverage as high as 400:1. $1,500 margin and very good correlation like pholmcgew stated gives me $8,500 to sit my place so long as I want. No stress, no fear....so spine

Now let's use a $10,000 account where I have 6 (2x3) of those pairs on. Extended 3 GBP/JPY and short 3 CHF/JPY. Employing philmagrew's math we make $8.21 per day for every set of pairs. 3 pairs are 24.63. Now times that by 250 market days annually which comes to $6,157.50

61% Return on $10,000!!

Now I can also add to this a trading technic which uses only a fraction of my first place (i.e. 1 mini lot) and buy 1 mini once the market drops 100 pips and also market 1 mini once the maket extends up 100 pips. This takes away from my initial position and adds. It will also add about another 10% to my return so today I'll have 71% in my account.

So how have you all done in the last 12 months? Are your accounts up over 71 percent? Hmmmmmmmm

Originally Posted by ;

Great instance. Now let's take this further. I really don't exchange those pairs so that I hope I am not too far away when I say it's cost $1,000 margin for each lot at 100:1 leverage. That would indicate that 6 pairs (3 pairs each) could cost $6,000 in margin. Of course at 200:1 that margin is $3,000 and also at 400:1 it's $1,500. My broker allows me to set the leverage as high as 400:1. $1,500 margin and very good correlation like pholmcgew said gives me $8,500 to just sit on my position so long as I want. No stress, no anxiety....so spine

Now let's use a $10,000 account where I've got 6 (2x3) of those pairs on. Long 3 GBP/JPY and short 3 CHF/JPY. Employing philmagrew's math we create $8.21 a day for each set of pairs. 3 pairs would be 24.63. Now times that by 250 market days a year which comes to $6,157.50

61% Return on $10,000!!

I can also add to this a trading technic which uses only a portion of my initial position (i.e. 1 mini lot) and buy 1 mini once the market drops 100 pips and also market 1 mini once the maket extends up 100 pips. This adds and takes away from my original position. It will also add about another 10% to my yield so today I'll have 71% in my account.

So how are you all done in the previous 12 months? Are your accounts around 71%? Hmmmmmmmm

Dude, that is Good! Regrettably, many would reject an offer for 61 percent a year to the dream of earning more.

Trading 3 lots for 1 pip is still a pip a day though

Your yield could be higher than 61% as you have not considered the fact that as your account grows you could add extra positions as margin becomes availalbe.

Of course, the downside is there is no such thing as an ideal hedge and you do presume some directional risk during times of non-correlation. You merely need to scroll to continue Decemeber to find that somebody blinked and the GBPJPY fell 1100 pips although the CHFJPY hedge only covered 400 of those pips. Ouch if you bought into the 1 to 1 correlation. There'll be some cyclists again this season.

Thank you for discussing this like a grownup. It's a fascinating egy a lot of people don't know about. I did not intend to imply that any single individual is without a spine. I do however maintian that if you don't know where the market is going (in the absence of a carry trade egy) you are better sitting outside than paying double spreads to particpate in the market while not realizing any profit.