A few of us here have experienced the significant potential in trading the news release using different variations of the straddle; with x6 monthly account balance growth as a realistic prospect with 7 key trades in the live environment, matching the best high impact news with the most appropriate pairs.
The problem usually arises when the particular fixed spread broker we use flag up our accounts and invent new trading paramters to shift their risk back to us, or just throw us out altogether.
…I don’t see why we couldn’t organise to place those same trades by proxy through multiple different unlinked accounts sequently; james trades NFP with his and my funds, I then trade CPI with his an my funds etc…
There would be some problems in working out exactly how to stucture such an arrangement so that everyone would be confident in the safe custody of their funds and the trade implementation etc…That could always be worked out between intelligent people.
So I guess on a high level i.e in principle, what would you make of that idea.
The answer is to stop using a counterparty market-maker pretending to be a broker, and use instead a genuine broker who [B]isn’t[/B] himself involved in the outcomes of your trades, and prefers you to win than to lose.
Thank you for your response. I tried going ECN with the News Release but the problem was the risk inherent in the shifting spreads; you simply can’t calculate and minimise your exposure with any accuracy.
The fixed spread brokers effectively absorb that risk for you, not their intention for traders to take advantage of this for the news release im sure.
That is an overall edge, that can offer a 3 pip risk for a 20+ pip profit in most cases. Those ratios can’t be argued with.
I have a custom EA for this that works beautifully, know the right pair release combination and the broker it will definitely work with: problem. I’ve been restricted at news time and it turns out I could just use a friend to get round that.
Have been thinking about how to scale that up, including employing proxies for a fixed fee. But the problem was security of my funds plus it’s hard trying to explain to people that know nothing at all about trading.
I’m not surprised, if you have a genuine edge. Nothing personal - don’t take me the wrong way, but if I were a shareholder in the counterparty market-maker you were using, I’d also want you to be restricted or have your account closed, because it’s their money you’re winning, isn’t it?
I wouldn’t be willing to do it that way, myself. I’d feel that I’m being deceptive about it, perhaps breaching their terms of service, and it would only be a temporary solution, anyway?
I hear you, but please excuse my saying “Rather you than I”!
Indeed. To me also, if you don’t mind my agreeing with you about that! :8:
There is no breach of the T&C’s. We should be skeptical of the conflict of interest in their business model.
I believe that trading during high impact news when prices move quickly leaves them too exposed.
And that would be why they frown upon that kind of trading, we’re taking advantage of their fixed spread marketing tack to transfer all the spread fluctuation and liquidity risk of high impact news to them.
Even so, you’re right it is skirting the edges. Or exploiting an opportunity.
You’re exploiting an anomaly/loophole in their system, arising from what they’ve decided for marketing purposes. I think we’re in agreement, really. But, for me, this is why what you’re aiming to do doesn’t really have the feel of a sustainable activity. :15:
I think we all have different perspectives, about this? To me, it isn’t entirely about “how long”: there are other considerations, too. For myself, I want my income to depend on something I know I can sit down and do reliably at/from 9.00 every morning without it being dependent on “not being noticed”, worrying about having my accounts closed, and depending on other people in whose names I can trade. Call me narrow-minded, and it’s literally “only my perspective”, but this has altogether too precarious a feel about it for me to be willing to try it, myself. Maybe it’s just me, but I really want my broker to be “on my side”, not “against me”. :8:
It’s probably not their money. More likely it’s another customer’s money. If there’s a position imbalance among their customers they may absorb some or all of it - depending on their risk policies. What they don’t absorb they hedge away with a liquidity provider (bank).
No legit broker is going to shut down an account for being profitable. If you’re doing well you’re probably going to keep trading and increase volume over time. They make their money off the spread. The more you trade, the more they make. If they don’t want to lose money on price movement to you, they can automatically hedge their exposure to you and lock in that spread profit.
I agree, John, but we’re not really talking about legit brokers, here, and (in my opinion) that’s probably what underlies the problem. I suggested in my original reply, above, that the answer to these situations would be to use a genuine broker, but as you see, was told that this had been tried and that the problem with it was “the risk inherent in the shifting spreads; you simply can’t calculate and minimise your exposure with any accuracy”. :33:
These particular guys r v legit and increasingly more so. the problem is their MM business model and the implied risk in those volatile periods. They r supposed to absorb it; they would prefer not to.
They are a legit regulated UK based broker. The straddle I use enters a hedged trade one minute before the news release and sets the stop loss and take profit both sides 5 seconds before the announcement.
With a fixed spread of say 1 pip on GBPUSD on CPI for example, I can set a stop loss of 8 pips boths ways and take profit of say 30 pips both ways.
Now if it spikes up my short position will close out with some slippage at circa 8 pips loss, whereas my long position would have made the equivalent profit (including the slippage). At the very moment of the short position closing; the long position reverts from having a fixed stop loss to having a trailing stop loss, 1 pip behind the long position’s current price, so as to lock in the positive gains.
If the spike is sure and true, the long position will surge to the TP of 30 pips so my profit would be roughly 22 = 30 - 8 pips. if there is a whipsaw or any other kind of the reversal… the long position will hit its trailing stop which is 1 pip away.
The worst case scenario using this example is that the short position closes, the trailing stop kicks in on the long position and almost immediately there is a whipsaw and the long position hits its stop loss. So my overall loss would be the 1 pip spread plus 1 pip to my trailing stop: quantifiable.
[B]22 - slippage : 2 + slippage[/B] is a good ratio that is sure to win long run and most importantly… works perfectly, both in theory on the demo and in practice on live account; that is until they restrict your movement around the news release.
You can’t play this strategy with true ECN the spreads shift wildly and in such a way that the trailing stop may be knocked out not by a true ((Bid + Ask)/2) move but simply by a spread increase. The only way to solve that would be to increase the trailing stop distance to adjust for the spread variations, but then that just makes the overall risk for the trade that much more incalculable; if my Risk = Spread + Trailing SL Distance + Slippage.
This increased risk changes the R:R is such a way as to knock out many potentially good trades each month and makes the proposition more risky and cavalier in general.
The fixed spread broker buys from me and shifts it to their other client for a spread, when the prices spike that quickly there is more of a chance that they buy from me and have to parcel it to their other client at a losing price for them i.e. over and above the spread they charged.
That is the risk inherent to the spread shifting and price spiking nature of high impact news from their point of view on people trading this or similar strategies.
After making a 72% return on my first live test of this system with them, they subsequently restricted my movement. Speaking with them to find out why, they explained to me the risk implication for them and that this style was “frowned upon”. which tells me that I am not the first person to have used it.
I could not find anything in their execution policy or terms and conditions that made any mention of this…and that is still the case. My guess would be that it is not a big enough problem to justify the technology cost in blocking the loophole. 10 sequential trades of this nature could grow a 10k account to 60k in 6 weeks or so as it has done consistently in the demo.
For sure. The reason you can’t do this successfully with a genuine ECN broker is the same reason that your counterparty “broker” can’t afford to have people doing it to them: it’s their money you’re winning - they have the same problem laying off your position in the underlying market, just like you can’t put your position on in the underlying market and need to resort to using the counterparty market-maker to “play” at all, in this way.
In the long run (back to “sustainability” again?) that’s not going to matter: they’ll have some clause buried in the fine print that entitles them to an overall discretion to “restrict” punters, or whatever, to protect themselves. And nobody can force a broker to take their business, if the broker doesn’t want it.
There are broker terms which restrict what they consider scalping - fast in and out trades. Basically, they can’t manage their risks in such a short-term period. It’s not just about losing money on your position, it’s also about putting their whole business at risk - and by extension their other customers. See what happened to some big brokers last year when the CHF pairs went crazy.
