there is no advantage. say you buy X amount of EURUSD and sell Y amount of EURUSD thats the same as just having a (X-Y) position on. why not originally buy (or sell if Y>X) (X-Y) units if you enter the trades at the same time. you gain absolutely nothing by hedging against the same security. right?
Off course there is no advantage , this "hedge" thing is just a marketing trick of the bucket shops ; sounds "sophisticated" better to say to your girlfriend ;I have a "hedged" position than no position , capice ?
Without really meaning to, I may have stumbled onto an intriguing question, with an assist from Virgin. Itâs this: Which produces better effects on or for the retail forex trader, 1) Going long and going short in the same currency, at the same time no less, by masterfully utilizing for that purpose an array of sub-accounts, fictitious or âfrontâ names, cut-outs, and similar devices, OR 2) Going over Niagra Falls in a barrel ?
Oh there is a point to buy and sell the same currency pair, but I should make it like all the so-called gurus and do seminars with a 50$ entry fee.
Same currency = limited. You could take a view that you don't know which way the market is going to go. You enter the hedged position. When the trend is established, you close out the +ve position and wait for the -ve position to retrace beyond the spread (plus debit interest); you then have a net +ve position. Instead you could go long-short a bit like a hedge fund. This requires finding two currency pairs with a strong correlation. You would trade the highest interest pair in the necessary direction and the lower interest pair in the opposite direction. You will then get regular interest payments. Using 10:1 leverage , you could expect equity swings of 5-6%. You would plan to get out on a positive swing. The correlation needs monitoring since it can change with time. Morty
What is the advantage of this over trading the cross currency directly. (i.e. trading EUR/CHF instead of EUR/USD and USD/CHF, supposing the latter two have a correlation that is somehow tradable)
No stop orders at Oanda? Good one. Care to elaborate? EUR/USD spread at Oanda is 1.2 (not 1.5) more than 99.9% of the time, outside of news. And there are well known, relatively easy ways for any automated trader to earn enough monthly credits to cover most or all of the $600 API charge, even with a modest account size. They've been discussed extensively on their forum. In addition to the variable b/a spread, IB also charges 0.2 pip / side = 0.4 pip / RT commission (unless you are trading over 100 Mio / day), with a $2.50 / side minimum. The bottom line is -- there are a number of critical factors where IB and Oanda are differentiated (do a search here), but cost isn't going to be one of them, certainly not for trading EUR/USD.
I don't know about EUR and CHF - interest differential looks a bit narrow. Look at GBP/JPY and EUR/JPY. The correlation is 95% positive. If you went long GBP/JPY, in January, you got +$22 per day and short EUR/JPY -$11. Net $10. EUR/GBP yielded about 50 cents. Of course subparity crosses are generally less volatile so you don't get the standard deviations you get with GBP/JPY but you don't earn the same either. Interestingly, in January, the GBP/JPY went on a charge relative to EUR/JPY so the interest earned became insignificant. I made 3.12% in one trade net (admittedly over-leveraged at 10:1). I covered - it was enough already. Regards Morty