Position averaging to earn interest

[PIP CHASER]

Hello,

I would like to post a thought I had about long term investing using position averaging using 2 negatively correlated pairs (EUR/USD & USD/CHF) and only trading long for both to gain from the interest paid daily. Could anyone comment on how the max drawdown can be identified? I will like to come up with an end of day close value and input it into a spreadsheet for analysis.

Here is example of how interest can be powerful over time.

Open .1 lot long for each pair every day until 60 lots total are opened for both pairs (30 lots EUR/USD & 30 lots USD/CHF).

$8 is collected for 1 lot EUR/USD & 1 lot USD/CHF (IBFX)
$8 x 30 lots = $240 a day
$240 X 7 days = $1680 week
$1680 x 52 = $87360 year

The margin requirement on 400:1 to have all 60 lots open is $15000.

I would like to see how much drawdown there would have been if all 60 lots where opened over a long period of time.

Does anyone know how to test this? Any comments would be welcomed.

[rantinraven]

Interesting concept. I look forward to seeing the replies to this thread. I had always tried to close my positions at the end of the day for fear of rollover rates. Might be interesting to just hold a few long position if it was a "sure thing" ( I know doesn't really exist) and just trade the other pairs that I wish to.Thanks for bringing up this idea, Raven

Might definitely be interesting to be holding a few positions like that next month. With rates changing daily is it always $8 per pair or does that amount fluctuate to far to actually pinpoint how much money could be made on the investment.

[4xStar]

Originally Posted by PIP CHASER

I would like to see how much drawdown there would have been if all 60 lots where opened over a long period of time.

Does anyone know how to test this? Any comments would be welcomed.

Check out this thread:
GBP/JPY Equity Building Profitable trading strategies

for more than you need to know about this strategy .. and haught007 recently posted a spreadsheet there, with the info you are looking for. If you plan to do this I would suggest going with pairs that pay high swap like the GBP/JPY and NZD/JPY but ... the trick is to buy them right in the beginning. Wait .. months or a year or more if necessary .. for a huge collapse, then buy & add on retracements on the way up.

That, I think, is the only sane way to do this and keep an account alive ... but check out the thread and the spreadsheet and draw your own conclusions

[ECN-scalper]

This endeavor is not worth the effort or the risk.
There is absolutely no way to gauge the potential
drawdown on pairs like GBP/JPY.
To do what? To earn interest? Come on people.
Are you here to learn trading or to earn interest?
Demo it and see how soon you have psychological
meltdown all to earn some interest?

[PIP CHASER]

Originally Posted by rantinraven

Interesting concept. I look forward to seeing the replies to this thread. I had always tried to close my positions at the end of the day for fear of rollover rates. Might be interesting to just hold a few long position if it was a "sure thing" ( I know doesn't really exist) and just trade the other pairs that I wish to.Thanks for bringing up this idea, Raven

Might definitely be interesting to be holding a few positions like that next month. With rates changing daily is it always $8 per pair or does that amount fluctuate to far to actually pinpoint how much money could be made on the investment.

There is no sure thing in forex otherwise everyone would be successful.
$8 a day is based on 1 lot long on the EUR/USD & 1 lot long on the USD/CHF.

I like these pairs due to their negative correlation and the ADR being very similar. I started this strategy last week building very small daily positions using micro lots (.01 lot for each pair). So far, so good.

[PIP CHASER]

Originally Posted by 4xStar

Check out this thread:
GBP/JPY Equity Building Profitable trading strategies

for more than you need to know about this strategy .. and haught007 recently posted a spreadsheet there, with the info you are looking for. If you plan to do this I would suggest going with pairs that pay high swap like the GBP/JPY and NZD/JPY but ... the trick is to buy them right in the beginning. Wait .. months or a year or more if necessary .. for a huge collapse, then buy & add on retracements on the way up.

That, I think, is the only sane way to do this and keep an account alive ... but check out the thread and the spreadsheet and draw your own conclusions

Thanks for the link. I plan to only use the pairs I mentioned previously due to their strong negative correlation and ADR being similar.

[PIP CHASER]

Originally Posted by ECN-scalper

This endeavor is not worth the effort or the risk.
There is absolutely no way to gauge the potential
drawdown on pairs like GBP/JPY.
To do what? To earn interest? Come on people.
Are you here to learn trading or to earn interest?
Demo it and see how soon you have psychological
meltdown all to earn some interest?

Thanks for your post. I would not personally trade the yen cross pairs for this strategy. As for as earning interest over the long term, I think this is an great way to earn passive income if the risk can be managed.

[akeakamai]

Originally Posted by PIP CHASER

Thanks for your post. I would not personally trade the yen cross pairs for this strategy. As for as earning interest over the long term, I think this is an great way to earn passive income if the risk can be managed.

Long EUR/USD + Long USD/CHF = Long EUR/CHF

all the risk information you need is in EUR/CHF. As you can see, there is still some serious drawdown risks (Look at Oct 2007 to Mar 2008). I'm sure you would agree there's nothing special about holding a long EUR/CHF position. I think you are counting on your negative correlation being perfect, but if it was perfect, EUR/CHF would flatline, and it clearly does not, meaning the correlation is far from perfect.

[pablopluto]

Originally Posted by ECN-scalper

This endeavor is not worth the effort or the risk.
There is absolutely no way to gauge the potential
drawdown on pairs like GBP/JPY.
To do what? To earn interest? Come on people.
Are you here to learn trading or to earn interest?
Demo it and see how soon you have psychological
meltdown all to earn some interest?

I agree I only recommend interest if you like long term and not daily trading about 6 months or more.

[Andrewunknown]

Originally Posted by akeakamai

Long EUR/USD + Long USD/CHF = Long EUR/CHF

all the risk information you need is in EUR/CHF. As you can see, there is still some serious drawdown risks (Look at Oct 2007 to Mar 2008). I'm sure you would agree there's nothing special about holding a long EUR/CHF position. I think you are counting on your negative correlation being perfect, but if it was perfect, EUR/CHF would flatline, and it clearly does not, meaning the correlation is far from perfect.

Long EUR/USD + short USD/CHF = long EUR/CHF. I know you know that akeakamai: just clarifying in case anyone became confused.

The inverse coefficient on these two pairs is normally very high, although never (except perhaps for very brief periods) -1; but EUR/CHF's range and volatility is not reliant on inefficiencies in the fiber/swissie correlation; remember that activity on cross pairs is not wholly (and sometimes not even mostly) derivative of activity on their base pairs.