can someone explain to me what these guys are trying to do please - Page 2
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  1. #11
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    Quote Originally Posted by pipbull View Post
    There are brokers out there i think that will allow you to do it in the same account, but like i said, nothing is that easy. If you manage to find one that allows you to do it, they probably would not pay you the interest.

    But what i don't understand is why anyone would want to go long and short on the same pair. You receive interest on the long side only to have to pay it out on the short side (in the case of GBP/JPY).

    I'm sure i'm missing something though...
    You really are missing something.
    the point is opening two different accounts in two different brokers.
    some brokers pay&charge interest differentials, and some don't.
    with the broker that DOES pay it, go long on AUDJPY, for example (6.25% against 0.25%).
    go short on THE SAME PAIR with the broker who doesn't charge interest differentials.
    assuming you opened both positions on the same price, what you pay is only the spread twice. the swap paid back by the broker who pays it, is very sweet indeed. in fact, you should cover spread expenses after two days or so(depends on the spread of course).

    really does sound interesting.

    problem is, as mentioned in the forum, that the broker who doesn't charge interest, will lose money because of you. if you short AUDJPY, for example, HE's the one paying the interest.
    this entire strategy is based on getting your profits from the broker, regardless to the currency. he's the one who's paying you. and he wouldn't like it.

    the only solution I see, is using that stategy as a side strategy, just to increase incomes, and make other trades as well, so it doesn't look suspicious.

    regards.

  2. #12
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    Quote Originally Posted by parsush View Post
    You really are missing something.
    the point is opening two different accounts in two different brokers.
    some brokers pay&charge interest differentials, and some don't.
    with the broker that DOES pay it, go long on AUDJPY, for example (6.25% against 0.25%).
    go short on THE SAME PAIR with the broker who doesn't charge interest differentials.
    assuming you opened both positions on the same price, what you pay is only the spread twice. the swap paid back by the broker who pays it, is very sweet indeed. in fact, you should cover spread expenses after two days or so(depends on the spread of course).

    really does sound interesting.

    problem is, as mentioned in the forum, that the broker who doesn't charge interest, will lose money because of you. if you short AUDJPY, for example, HE's the one paying the interest.
    this entire strategy is based on getting your profits from the broker, regardless to the currency. he's the one who's paying you. and he wouldn't like it.

    the only solution I see, is using that stategy as a side strategy, just to increase incomes, and make other trades as well, so it doesn't look suspicious.

    regards.
    I see. I guess it would be crucial for you to find 2 brokers, one who pays and the other who does not charge.

    But if the broker that is paying you interest is on the other side of your trade, and your trade is losing, then why should he care if he is paying you interest? The P/L can quickly outweigh whatever you make in interest. I think you might be missing that fact.

    The broker paying you interest really doesn't care about the other broker you are with and doesn't care if the other account is offsetting the losses/gains made in his account. He just knows that most people entering this domain will likely engage in many more losing trades than winning ones and so if he has to sacrifice a little interest in order to be on the other end of your losing trades then so what?

    When it becomes truly suspicious to the broker is when you hedge one pair against another highly correlated pair in the SAME account. This is because if positions are truly offset then it means he is not making any money off you at all, but just paying the interest. Do this successfully for a while and the broker might feel like intervening.

  3. #13
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    Dear pipbull,

    I think you got something entirely wrong on your basics...
    when you lose money, in FX, you don't lose it to the broker. it's not like a casino, in which the broker is the dealer, and you have opposite interests...
    when you lose money in forex, you lose it to those who made the right trades and just a little of it to the broker, as spread.
    when you EARN money, you don't earn your broker's money. you earn the money from people who took wrong trading decisions.
    all in all, it's a giant market, and it feels as if when you lose\win money, it comes from "the market" and goes to "the market". not the broker.

    the broker's only earnings come from spread. and THAT'S IT.
    those who don't charge\give interest, might win or lose money as well, but I suppose they're usually even.

    this is why, when you take advantage of the broker's terms (of no interest) and you make only one trade per year (you go in short only once, and that's why you pay the spread only once), the broker might realize what you're doing and shut you down.

    regards.

  4. #14
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    Quote Originally Posted by parsush View Post
    Dear pipbull,

    I think you got something entirely wrong on your basics...
    when you lose money, in FX, you don't lose it to the broker. it's not like a casino, in which the broker is the dealer, and you have opposite interests...
    when you lose money in forex, you lose it to those who made the right trades and just a little of it to the broker, as spread.
    when you EARN money, you don't earn your broker's money. you earn the money from people who took wrong trading decisions.
    all in all, it's a giant market, and it feels as if when you lose\win money, it comes from "the market" and goes to "the market". not the broker.

    the broker's only earnings come from spread. and THAT'S IT.
    those who don't charge\give interest, might win or lose money as well, but I suppose they're usually even.

    this is why, when you take advantage of the broker's terms (of no interest) and you make only one trade per year (you go in short only once, and that's why you pay the spread only once), the broker might realize what you're doing and shut you down.

    regards.

    Hi Parsush,

    You may be right on my faulty basics, but i'm not convinced yet. I do not dispute the fact that this is a zero-sum game, whereby every winning trade is coupled with a losing one from someone else. What i always thought to be though, was that your broker is not going to necessarily pair our dinky MICRO lot trades with some other player. They'll match up the bigger professional traders with other bigger players but not necessarily our tiny trades. They can't be bothered with that. Instead i always thought it was much more interesting to the broker to pinpoint the amateur players because they know the odds are higher of them being wrong than the pros, and then take the other side. How else do you think a broker stop hunts? He takes the opposite side of all the amateurs who were not smart enough to avoid the most common stop-out levels.

    All this being said, i am fully willing to admit that i'm wrong. This is just what i beleived to be the case. And it is also why we are all here...to learn from each other. So, if anyone else would like to step in and clarify this for me, i would be grateful.

    Thanks

  5. #15
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    alright, I have to apologize, both for my english (not a native) and for not being clear.
    sorry
    when i said that when you lose money, you lose it to those who made the right trade, it's not like you're being coupled with another trader inside your broker's list.
    it's more like... umm.. alright I'll rephrase:

    imagine my house sets on fire. I manage to turn it off before it's too late, however some damage was done to it. my house just lost 20% of its value.
    where did the money go? it went, generally, to all the other houses in my neighberhood who were not set on fire (or affected in a negative way by the fire). now there's one house less attractive to compete them. so they're value rises at 0.01% each.
    my house's value didn't go into another person's house specificly, but into all of them together (so it's not coupled, but devided to all).

    it's the same with forex. when you long USDJPY you actually buy Dollars and sell Yens. that I'm sure you know of.
    however if the dollar falls, what happens is that the dollars you bought are now cheaper, and the yens you sold are more expensive. when you close the trade, (meaning you actually sell the Dollars back and buy the Yens back) the price differences go against you and this is where you lose the money.
    just like with my house, who was on fire, when your currency dropped, the other currencies (houses) haven't. so basicly, all the Yen holders in the world (or any other currency who didn't fall along with the dollar) are those profiting the sum you (and others who traded the same) lost (just like all the houses that are not mine gained a little bit of value).

    sh*t I hope this isn't difficult to understand... hmm.. really took time writing it and now I don't wanna delete it and start over again so I'll post it anyway

    if you have any questions, do ask... that's what we're here for.
    askin' n' answerin'.

    regards.

  6. #16
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    Quote Originally Posted by parsush View Post
    alright, I have to apologize, both for my english (not a native) and for not being clear.
    sorry
    when i said that when you lose money, you lose it to those who made the right trade, it's not like you're being coupled with another trader inside your broker's list.
    it's more like... umm.. alright I'll rephrase:

    imagine my house sets on fire. I manage to turn it off before it's too late, however some damage was done to it. my house just lost 20% of its value.
    where did the money go? it went, generally, to all the other houses in my neighberhood who were not set on fire (or affected in a negative way by the fire). now there's one house less attractive to compete them. so they're value rises at 0.01% each.
    my house's value didn't go into another person's house specificly, but into all of them together (so it's not coupled, but devided to all).

    it's the same with forex. when you long USDJPY you actually buy Dollars and sell Yens. that I'm sure you know of.
    however if the dollar falls, what happens is that the dollars you bought are now cheaper, and the yens you sold are more expensive. when you close the trade, (meaning you actually sell the Dollars back and buy the Yens back) the price differences go against you and this is where you lose the money.
    just like with my house, who was on fire, when your currency dropped, the other currencies (houses) haven't. so basicly, all the Yen holders in the world (or any other currency who didn't fall along with the dollar) are those profiting the sum you (and others who traded the same) lost (just like all the houses that are not mine gained a little bit of value).

    sh*t I hope this isn't difficult to understand... hmm.. really took time writing it and now I don't wanna delete it and start over again so I'll post it anyway

    if you have any questions, do ask... that's what we're here for.
    askin' n' answerin'.

    regards.
    Parsush,

    First let me start off by saying i appreciate your persistence in trying to make me understand. Thanks

    I'm not sure i really understood your analogy but i do understand the basic fundamentals of your USD/JPY example.

    I do realize that you are not literally coupled with another trader inside some broker's list, but when you get down to it this is a zero sum game. For every winner there is a loser so in essence there is some form of coupling. Maybe it's not the right word to use but in the end you are either taking someone else's money or they are taking yours. I think we can agree on that. Despite what you may think, that other person is going to be the broker sometimes. They DO make their money in more ways that just collecting the spread.

    Put yourself in the broker's place. They are entering into a business where they know ahead of time that 90% of people who attempt to trade will fail. As a broker, would that not be a tempting idea to capitalize on? Pretend someone handed you a losing trading strategy. For some reason, you knew beyond a shadow of a doubt that this was a losing plan. Assume ethics went out the window for a moment, why wouldn't you be tempted to take the other side of that guy's trades every time? This is not a far stretch from the broker's reality. Of course they want you to believe they make money on the spread only because many traders like you and me would feel that to be a conflict of interest for the broker to be on the other end of a client's trade. But that is reality.

    Check out forexfactory and other forums and you'll see how many people refer to this practice.

  7. #17
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    hmm... didn't know that. thanks for the info, I'll look it up.
    so what you're basicly saying is that if we try that hedge thing, the non-charging broker wouldn't mind his interest loses because he'll go the other way and make his money on our losing trades?
    I'm not really sure how this thing works, but since that hedging strategy doesn't depend on anything (technical\fundamental) at all, basicly it's like tossing a coin. 50%-50% shot. the broker couldn't "mark" you and do the opposite. meaning he wouldn't go the other way because you might as well be right with your decision...

  8. #18
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    I must add something though.
    after re-reading your post, I came across something I don't fully agree with.
    when a trade is losing, it's not necessarily a winning trade for the other position... many things can cause (whipsaws, SL:TP ratio, steady price, reversals) BOTH trades to lose...
    the fact that 90% of traders lose doesn't say that if you took their oppositte
    position you would have won.
    thier TPs, for example, might have just been too high, or SLs too low...

    I agree that our tiny lots wouldn't mind much for the broker, but 10 lots trade for 1 year of interest loses, whereas it's the only position opened in that account, might be noticed and marked "suspicious".
    this, of course, is just a speculation...
    Last edited by parsush; 12-22-2006 at 06:31 AM.

  9. #19
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    well, im a little worried about the fact that the no swap broker can close your account down if they suspect that you may be hedging and costing them money.

    well couldnt you wait till the maket that you are buying to collect interest is in a down trend and then buy at that point so that the interest paying account goes down while you collect interest. and then you can do the opposite in the no swap account and have the balance increase? will the no swap broker have a hissy fit over doing this? is what im saying even making sense?

  10. #20
    Oanda does not allow hedging. Who else doesn't?

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