Stop stop STOP... rewind: What you're talking about is 'synthetic' pairs. Take a moment to read about it over at babypips.com's school course on the subject. Basically, you don't want to do this for the majors, since it would just effectively increase your spread cost vs taking the pair directly. Instead, use this method to create exotic pairs that might not be offered by your broker.... for example, if your broker only offers the Mexican Peso as quoted against the US Dollar, and you want to trade the Peso vs the Canadian dollar, then you could use a synthetic crafted out of USD/MXN and USD/CAD to do so. . . Most brokers already do this for you... they might not have a good liquidity source on some exotic pairs so they construct the pair themselves and quote it to you as a normal symbol... this is why the spread can be so high and varied between brokers on some exotics. Lastly, keep in mind that the exact position sizing to create an accurate synthetic often is hard to achieve with a fixed lot broker... a company like Oanda who lets you trade in orders as low as a single dollar of currency would be best to make the synthetic pair perfect. Also, consider charting packages that allow you to plot a synthetic.. Thinkorswim's platform allows you to view the difference between prices on two instruments, which would give you a rough indicator of chart action on the synthetic.
I'm I'm long CHF/JPY long USD/CHF Short USD/JPY then yeah I am cancelling out If Im short USD/CHF long USD/JPY Short AUD/CHF long AUD/JPY how am I candelled out?
I'm not averaging down, I'm dollar cost averaging to build up a position. Besides for every dollar I'm adding to a small loser, I'm subtracting an equal amount from a larger loser. If everything were to stay the same and nothing ever changed, my biggest loser would be my smallest position over time. I'm also adding to winners.
You are not cancelled out... you are double long CHF/JPY... First you borrowed USD to buy CHF (short USD/CHF) Then you borrowed JPY to buy USD (long USD/JPY) You have a resulting exposure of a long position in CHF/JPY Then... You borrowed AUD to buy CHF (short AUD/CHF) Then borrowed JPY to buy AUD (long AUD/JPY) You have another trade resulting in long exposure to CHF/JPY Thus, double the exposure to CHF/JPY
Dollar cost averaging is an investor's tactic best used when buying into an index fund periodically over a set amount of time with a set amount of dollars. It is a passive investment tool. Traders are active investors, not passive investors. The only time when you should average a position's price is when you pyramid into a trade that's going in your direction.... but many professional short term traders don't do this, for it is more of a position trader's tool to be used over longer time frames (months.) Put another way.. if you enter a position that initially shows a loss only to rebound in your favor at a later time.. your entry was wrong, or you were still working within the distance before your stop (ie, within acceptable risk.) Why would you ever want to increase the risk you have on a losing trade? Work on your entry signals if you find a lot of your good trades start their life as bad ones...
right, I want be long CHF against everything and short JPY against everything. Other than the spread and commisssions how is CHF/JPY better? CHF may strengthen against everything but not JPY, or JPY may weaken against everything except CHF. But the big idea is long CHF/JPY
If done properly... that is, the dollar amount being cancelled out with USD and AUD are equal between trades (hard to do if you don't have a broker who does small lot sizes... like single dollars or smaller than micro lots... then aside from the spread difference there shouldn't be any price difference between actual CHF/JPY and synthetic CHF/JPY. So neither is "better" if the synthetic is executed properly and we aren't considering spread cost difference. edit: actually, after writing the catch below, I realized if your broker implements interest rate payments / credits by rolling the position price itself by a value in pips difference to represent the interest payment/credit.. then it would obscure the correlation between synthetic CHF/JPY and actual CHF/JPY over time. While the price movement might be the same, the underlying cost of borrowing might hurt you over time. For example, the cost to borrow AUD is higher than the cost to hold it, so your net interest rate differential (ie, the roll at 5pm some brokers implement, or the interest cost applied) would be MUCH higher relative to just taking CHF/JPY as a pair on it's own. How would this apply to you? You'll have to break out a calculator and compare interest rolls at your broker to figure out what the difference would be...