How to profit from "difference in currency"

Discussion in 'Trading' started by Youss27, May 18, 2018.

  1. Youss27


    Hi all,

    There is broker A and broker B. They offer forex products such as options and with the same underlying except one counts in euro's and the other in yen. So if the underlying moves one pip up broker A will pay 1 dollar and broker B will pay 100 yen which equals 0.9 dollar. This means there is a difference that perhaps offers an opportunity for profit.

    What kind of (option/spot forex) strategy should I use to profit from this currency difference?
  2. Youss27


    My currency is dollar so maybe some kind of triangular currency arbitrage....?

    dollar --> euro --> yen and then back to dollar

    But not sure how to implement with options...
  3. Sig


    This won't work, and there are two explanations as to why. The first is the most intuitive and it will serve you well to learn it early in your trading career. The market is made up of thousands of very smart individuals. Thousands of them are smarter than you (and me). If you don't like book smart, than there are thousands of them that are more "street smart" than you (and me). If there were a relatively obvious way to make a risk free arbitrage profit, like you present here, it would have been discovered and arbitraged away long ago. That's not to say there aren't edges to be discovered, but when you do discover one you're implicitly saying you and you alone were the only person who had what it took to discover that edge. Not likely for most things, certainly not for what you list here. It's a bit of a turn on the old saying, if you don't know who the sucker is at the poker table, you're the sucker. If my strategy requires that everyone else in the market is a moron, I'm probably the moron.
    As to a technical explanation, if you enter opposite transactions such as you describe, you've essentially synthetically created a straight forex transaction and you're now speculating on where the dollar will move vs the yen. It is far cheaper to just enter a dollar/yen forex trade than to do so via options. The spread on options is huge compared to forex transactions, so even if there were a slight mispricing in the options versus the underlying forex, the transactions costs would far exceed the proceeds of a triangle arbitrage opportunity. But don't take my word for it, go ahead and try a few transactions (very small just to prove out the idea). No better way to learn than trying.
    CALLumbus and DaveV like this.
  4. Youss27


    Did not ask for your life story

    We are dealing with dollar/yen with different payouts:

    dollar/yen 1 pip up = 1 dollar
    dollar/yen 1 pip up = 0.9 dollar

    There is a difference of 0.1
    How do we exploit this?
  5. Sig


    Like I said, you are implicitly saying you've discovered something that none of the rest of the market has. That makes you absolutely brilliant, in fact far smarter than anyone here, so why waste your time asking any of us mere mortals a question like that?

    My point being that you probably don't realize it, but you're implicitly saying you're smarter than than every single person in the market if there's a way to exploit something as basic as what you're talking about that you discovered in your first month of trading and that not a single other person has figured it out and arb'd away. That's obviously absurd to anyone who's been at this game more than a short while. But again, don't take anyone's word for it, give it a go and let us know when you retire in Monaco. The technical explanation will be clear to you at that point as well. I'm not missing your point, I'm telling you that you can't exploit what you're seeing. You're obviously not going to pay attention to any answers, so you might as well stop wasting everyone's time asking the questions and just learn the hard way.
    Last edited: May 18, 2018
    Lou Friedman likes this.
  6. Youss27


    What is it about me that I always attract retards somehow

    Does anyone else (with more than one brain cell) care to share some light on this?
  7. Sig


    It's like the three times divorced person wondering why they keep getting stuck with spouses who are so hard to get along with. Gotta love the FNG!
  8. carrer


    I know some guys made profit through arbitraging. They will usually look for some 'not well known' brokers where their prices differ from the other brokers.

    Some took advantage of the price delay. Some brokers are slightly slower than the other brokers. You can also exploit this. The bad side is, some brokers will ban you if they found out. So you got to check with your brokers if they allow this kind of trading.

    On how to exploit this, whenever you see a price difference you will have to buy on one broker and sell on the other, simultaneously.

    You have to make sure that the difference should value more than your spread, commissions, and other costs (if any).
  9. CALLumbus


    Hopefully you will find someone with one brain cell, that would already double your intellectual capacity.

    Now go back trading your sooperdooper retail forex arbitrage strategy on your 15 EUR accounts with your cypriot and zimbabwean licensed and regulated brokers.

    ROFL :finger:
  10. Youss27


    I don't know what you're problem is but I would rather have no brains cells than the ones you have.

    There is no strategy you big freak of nature. Learn to read
    #10     May 18, 2018