Major & Crosses Lead/Lag Opportunities, Triangular Arbit

Discussion in 'Forex' started by scalpmaster, Jan 6, 2008.

  1. Is there a table somewhere that shows roughly the ratios to create an exact equivalent hedge between majors and crosses?

    e.g. eur/usd x usd/jpy = ? eur/jpy

    eur/usd x usd/chf = ? eur/chf

    gbp/usd x usd/jpy = ? gbp/jpy

    eur/usd / gbp/usd = ? eur/gbp

    Or is the ratio between major and cross pairs really so 'Dynamic' that you need to change the lots input constantly to maintain zero exposure i.e. Does it affect oscillations in net P/L much?

    Have anyone done an EA to display live this dynamic zero exposure ratio for different majors and their crosses?

    When a positive news for the us dollar is out, do you long usd/jpy, short eur/usd or gbp/usd or have some other approach? Which is more profitable?

    usd/jpy going up would probably pull up eur/jpy too and might curb eur/usd from dropping further...

    Anyone else into major leading/lagging crosses pairs opportunities?
  2. Not that I'm aware of. I built one in excel back when I used to trade crosses indirectly via the majors using futures. I don't miss those days. :)

    Short eur/usd - the anti-dollar. The yen's correlation with the dollar is much less of an exact science as it is with the euro. For the first half of '07, a weak dollar correlated with a strong USD/JPY (b/c heavy buying in the other yen crosses drove USD/JPY). Lately, because of equity market weakness driving weakness in the carry trade, we're now seeing the opposite, a weak dollar driving USD/JPY lower. GBP is not a good hedge as it has its own problems and has also fallen with the dollar (sending EUR/GBP into the stratosphere).

    What lag? Many many years ago there might have been arbitrage opportunities (if you worked on a bank desk), but today whatever lag there might be between the crosses themselves and the underlying majors is nullified in milliseconds by computers.
  3. eltrco


    Triangular Arbitrage is very difficult now.
  4. When you execute a combo of long 100K of Eur/Usd
    & long 100K of Usd/Jpy with an ECN broker like IB, you simply get a net position of 100k of long Eur/Jpy such that you cannot short 100k of Eur/Jpy to perform a triangular hedge.

    However, with other brokers such as MT4 brokers NorthFinance, IBFX, you can actually hold all 3 positions

    long 1 lot Eur/Usd, long 1 lot Usd/Jpy & short 1 lot Eur/Jpy with an oscillating net P/L.

    Can anyone explain why?
  5. sim03


    No, you don't get "100k of long Eur/Jpy." What you get is a basket of long 100K EUR, short ~48K USD and short ~10.6M JPY.

    Your P/L is oscillating because, again, your ratios are off... you are not neutral... you've only hedged your EUR exposure, 1 currency out of 3. You are still short ~48K USD and long ~5.2M JPY.

    To see this for yourself, think what "long/short 1 lot X/Y" is equivalent to, in terms of X position, Y position and X/Y quote...