Can someone explain to me what these guys are trying to do please

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.

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 [U]those who made the right trades[/U] 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

alright, I have to apologize, both for my english (not a native) and for not being clear.
sorry :slight_smile:
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… :eek: hmm… really took time writing it and now I don’t wanna delete it and start over again so I’ll post it anyway :o

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.

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…

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…

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?

Oanda does not allow hedging. Who else doesn’t?

oanda allows for carry trading though. what we are talking about are using two different accounts with 2 different brokers.

what im asking is can you open a position that will make interest even though the market is going the other way and hedge the loss in a swap free account. that way the swap free brokers are not getting upset then close down the account.

would the interest paying broker cup a fit if you try to hedge the market this way? if you are making interest but loosing money?

I don’t think it should matter to the swap broker. he’ll lose his money whether it’s an up or a down trend, unless pipbull’s right and then he’ll try to make his money by taking the other side of your trade.

I see a different way, though. Just don’t rely totally on this hedging strategy, use it as a way to improve statistics, and make other trades as well on you non swap account, that benefit your broker (like long USDJPY for example).
this way you cover his expenses by trades you wanted to make anyway and everyone’s happy.
problem is, again, capital…
you’ll need a massive one if you want the swap thing to pay off.

regardless to all the hedging thing, I’d like to verify what pipbull said with the experts. guys - if any of you can confirm (or deny) what he said, about brokers making money from spotting weak traders and trading against them - please share. this is not something you mentioned in the school section…

thanks!

i just read a article that talked about using another broker that just doesnt pay or charge interest or has a lower differencial to hedge the same pairs.
http://forexfacts.port5.com/index2.htm

May I have my input on the matter?

To benefit from Interest Payment you have to do the following:

1.
Open an account with a broker that pays/receives interest on Carry trades.

2.
Open another account with a broker that does not pay/receive interest on Carry trades.

3.
Long a high-yielding currency versus low-yielding currency in the first broker, let’s assume we went long GBPJPY!

4.
Short the pair you’ve just longed in the second broker (which won’t charge or pay any interest) so we went long short GBPJPY

Now we have equal positions on 2 different brokers, but we are receiving interest payment on our long GBPJPY and that’s increasing our earnings.

You only need a good starting capital, and protection against margin call.
This is very profitable If you do not want to trade the market.

Parsush,

I’m glad you brought up this point again. Based on some reading i’ve done, i’d like to present an alternate scenario for discussion. I still maintain that brokers can and do take the other side of our trades but they do not necessarily do it by literally picking and choosing the weak traders. Again, unless i am mistaken, i beleive what happens is brokers play a balancing act. For every buyer there must be a seller so if at the end of the day or whenever, they see that there were 1000 units going long but only 800 units going short, they will sell another 200 units short to make up the balance. Since most activity is from speculators, odds are that they will end up on the other side of our trades. The result is the same but the dynamic is perhaps a little different than what i first suggested. In any case, experts please feel free to chime in :slight_smile:

You said it right…we need to protect our accounts from margin calls. If you keep an eye on your account and if you are approaching a potential margin call, then just close both positions from both accounts and take the profit from one and replace it in the other. Then re-open both positions again. Would this be acceptable or would brokers flag this kind of stuff? But again, my skeptical insticnts kick in. Doing this would really make this a risk free way to collect interest indefinitly. Too easy?

As you say;

Too easy, and too good to be true? But it’s really true.
It’s risk free business in the risky FX world for people with initial big capital.

I am sure your broker does not reserve the right to prevent you from longing GBPJPY or any interest-payment pair.

The whole world is long GBPJPY and that’s why they sent the pair thousands of pips up.

They collect interest from Carry trading, why should not you? I do not think your broker will flag this, and If they do, they are scams!

I believe many of the Short Yen and Carry Trade fans have funds protection by opening opposite position with no interest.

Just try to make closing / and re-opening positions less frequent. To do so, start with a big initial capital, and give GBPJPY or your pair the room to trend 500pips or 1000pips until you close positions before margin calls. Easier? Cashout earnings, deposit…repeat! :slight_smile:

I guess now the trick is to find a good no interest dealer. Do you know of any?

Marketiva is a stable broker for my experience. Check them!

Why not just trade two different contracts of a FUTURES currency…buy one and sell the other…that called spread trading, and doesn’t require two accounts…

Yes, they DO…especially if you’re using a dealing desk broker…who IS the market maker, the ONLY one you have access to…and there are VERY few “non-dealing” desk brokers out there…I.E., a broker that will give you the best bid/offer from MANY different bank sources…if he is a dealing desk broker AND your market maker, then HE takes the other side of your trade…and it is “sometimes” (read ALOT) in his best interest to not lose his money to you…