EUR/CHF Revisited

Discussion in 'Forex' started by oldtime, May 19, 2012.

  1. I have a money management system that I would probably never commit real money to, but to test it out in a paper account, I could go short USD/CHF and short EUR/USD and as long as they are pegged I could see how much value the system has. Right?

    Well actually, I do have some real money committed, but it's a very small amount and I aint going to get hurt one way or the other, but it's based on the idea that CHF is going to peg but they're not going to follow all the way down, because there is some value to being stable.

    At anyrate, it's just a plain old martingale with a slight bias towards a short EUR/CHF.
     
  2. Maverick74

    Maverick74

    I think I've been through this with you before. I'm not sure why this is so hard to understand, but:

    EUR/USD

    ------------ = EUR/CHF

    USD/CHF

    It's the same pair!!!! There is no bias. If these pairs did not equal each other you could arb the two for a risk free profit!
     
  3. How many times do I have to tell you? Yes, they start out as EUR/CHF, but you martingale each pair, so eventually you end up with a larger position in the losing pair. You buy dips and sell rallies. You end up with a good price and hope it turns. If it never turns, then you must take a loss, usually one big loss as opposed to the many small losses a typical stop trader takes all along the way.
     
  4. Dummy!!!

    Your pairs come out to be eur/chf. There is no arguing about that. Now what strategy you employ is an entirely different story. Your idea is exactly the same as trading a martingale strat on eur/chf. Why is this so hard to comprehend?



     
  5. yes, it's all EUR/CHF, but it's two different strategies. Please don't call me a dummy. They talk about this all the time in game theory. Running two losing strategies together to produce a net profit at one time or the other. They don't call me oldtime just because I am old. Time is also a very (if not the most) important component.
     
  6. If i read this correctly, you start out with EUR/CHF but it quickly moves to either USD/CHF or EUR/USD as you start to add to one leg and/or subtract from other of your cross spread.

    This could be interesting given the SNB's committment to the EUR/CHF rate.
     
  7. thank you, yes that is exactly what it is. The SNB is why I give it a slight bias. Plus you never know what is going on with USD. otherwise, it's just martingale and involves all the safety and the ultimate risk of ruin attributed to that strategy
     
  8. Believe me when I tell you that you don't know what you are talking about. You buy 1 eur against usd and buy eurusd-fx-rate-units of dollar against chf and are long exactly one unit of eur and short eurchf-fx-rate units of chf. Makes sense so far? Now you have to agree that the correlation between both pairs eurusd and usdchf can be anything at any time right? It can be strongly positive, uncorrelated or strongly negative or anything in between. Agree? If you now look at the historical time series of those pairs and calculate a rolling calculation between those pairs you find my statement re correlation above supported by hard facts. Now there is better techniques to statistically test for independence but I chose to look at totally different regimes of correlation levels to make it very intuitive. Now if there are times of no correlation (r=0) then you must agree that over the measured time zone both pairs could have traded in any possible combination to each other right? Then this means that you have no better return expectation profile by trading the pairs individually over trading just eurchf. Sorry but I just think the above explanation should be completely unnecessary because every beginning trader of currencies should comprehend triangular arbitrage. When you can replicate a security by something else then the risk profile and return profile MUST MATCH. that's the whole point of derivatives pricing by replication and how black scholes was derived.

     
  9. yeah, except I am 100% directional, not triangularly arbitraged
     
  10. There is nothing whatsoever interesting about it because If you went long eurchf before snb pegged it would not matter whether you traded identical units of eurchf or a combination of eurusd long and usdchf long. You would have made exactly the same amount and risked the same. Your argument is that you bet with your martingale approach on a path of the usdchf pair independently of the eurusd pair and that assumption is dead wrong. It's always the same the changes in notional are explained by the pnl generated or lost. No magic here time to move along.

     
    #10     May 20, 2012