Forex hedge for dummies

Trading Systems Free Forex Trading Systems
#1

There are so many trading systems available to Forex traders. Almost all of them use some kind of technical indicator. Almost all system is trying to speculate
where the market will move and thus trade in that direction in hope to make profit.

The system I am sharing is a little difference. The purpose is not to beat the market, but the strategy is to open positions in such a way that it balance or hedge each
other so that we can collect interest and swings profit.

The first one is the full hedge strategy that hedge the high interest paying pairs such as the gbp/jpy, nzd//jpy, aud/jpy, or gbp/chf to earn daily interest.
You need two accounts for this strategy.

The second strategy is the pseudo hedge strategy. This one uses the lowest interest paying pair to hedge the highest interest paying pair.
The two pairs must be closely correlated. This strategy can earn both interest and swing profit.

See the attached pdf article for more detail

Two simple GMT hedge system.pdf (16 KB)

#2

Thanx for this… very interesting strategy…

#3

Thanks, the idea is very simple indeed. If you have any question, feel free to ask. :slight_smile:

#4

I love system number 1. This has come up before but for some reason it has never been popular. I always thought there were hidden drawbacks, i hope to see some exprienced traders comment on this.

Bonrak are your doing both and for how long? The only drawback i can see is changing interest rates by the broker. It has always been a mystery how some shops calculate interest (and why some don’t) and the ones that do pay interest often change. That is the only issue i can think of at the moment.

How long would you hold on to the trade on system 1?

#5

The brokers receive their interest from the banks and pass it on to us. The interest rate in each country always changing and so does bank rate, no one can control that. But a few dollar fluctuation doesn’t affect our earning that much.

The biggest obstacle to this system is to find a nice broker that allow us to trade this system without giving us any trouble. Some broker do not like carry traders because they don’t earn money from spread because we hold our position longer than day traders. But base on my experience, I have found a few that don’t mind for us to carry our position for extend period of time.

The best broker to use for this system is the one that pay us high interest rate and allow high leverage, so far I only found a few reliable brokers that allow up to 400:1 leverage. Note, when we trade, we do not use all the leverage allow, but we need high leverage so that we can use less margin and leave more fund for reserve. The more fund reserve we have, the longer we can hold our positions, the more profitable for us.

#6

Bongrak,

I know if one broker that allows 400:1 (FXSol) can you please list a few more?

:o

#7

FXsol pay very low interest rate, thus not good to use for this strategy.

I know a few more that pay high rate and allow high leverage.

Email me and I will send your more info.

#8

i think MG Forex allows 400:1 leverage. what is your opinion on them?

#9

I have no comment, I never use MG forex. I only US broker at this time.

#10

there has to be some sort of risk involved here

#11

The risk you take is having your money taken by a dishonest, or mismanaged broker. Some of these FX brokers are near bankruptcy and some have gone bankrupt.

#12

so what are some good brokers, interest and non-interest paying, that would work well with this strategy

#13

Hi everyone,

You know - I’ve been watching this thread for a while now - and downloaded and looked at the .pdf file. It looks interesting - not anything I would go for - but - on paper - there is no reason why this should not work.

The one thing that has bothered be about this thread though - is the fact that for some or the other reason - it almost seems as if it’s supposed to be some or the other ‘state secret’ that a particular broker offers interest free accounts. I mean - whoever started this thread - why not just post the brokers name?

Put it this way - if it’s a true broker - then they don’t give a continental how you trade or what you trade or whether you are making money out of the interest differential paid or received from the banks etc. etc. etc.

So - being the good person that I am (and because I’m bored and have nothing better to do with my time right now because the markets are not moving in any direction whatsoever at the moment) - I made an enquiry at ‘the best’ broker in the world - one that meets all of the above requirements - and here is the low down:

Delta Stock will open a normal interest bearing account AND an interest free account for you. They pay good interest (I’ve looked at the rates) and there is none of this ‘b*****t’ about only getting interest if your balance is a certain minimum or your lot size is a certain minimum of whatever. The minimum amount required to open an account with them is $100 or 100 Euro - and that’s it.

So - if you want to try this strategy - then - if you go to Delta - you only need to open accounts at one broker - which I’m sure will be a hell of a lot easier to manage - because - if I read this correctly - you have to continually keep balancing the accounts - which I would think would be impossible if you had accounts at two different brokers because of banking delays etc. etc. etc.

And - once again - I am in no way affiliated with Delta Stock, I do not get paid for referring anyone to them, I am just a very happy and satisfied Delta Stock client (and yes - I trade live - and have been doing so for the past six or seven months at Delta - so I’m NOT talking about demo accounts - I’m talking the ‘real deal’ here).

If you want to know more about Delta Stock then go and have a look at my messages regarding Delta Stock in the ‘Rate My Broker’ forum on this site.

If you want to know why I ‘punt’ them so heavily - especially after reading my posts regarding Delta Stock - it’s purely because I get ‘f****d’ on a daily basis by my other two brokers - but I have to stay with them until Delta goes live with their CFD’s, Metals, Oil, Commodites, and the Indices (which I’m told will be by the end of this month or early next month i.e. I trade ‘forex’ to pass the time - Indices is my thing).

If you could not be bothered to read my posts then you may as well just ‘mosey on over’ to DeltaStock Inc.

Good luck.

Like I said - there is nothing inherently wrong with this concept. I just know that you need a ‘s**tpile’ of money to make anything worthwhile out of it - but - like I said - on paper - it must / has to work - it’s pure math!

Regards,

Dale.

#14

Can I use this hedging strategy at Marketiva?That’s my broker…

#15

Dale, thanks for sharing your thought. I and some of my friends has been doing this for almost two years now, yes it works. Yes we have problem sometimes when market move too fast, we cannot balance our account and are forced to close out our hedge, but most of the time we are doing fine.

As for Delta Stock I will do some more research. Thanks for sharing that info. But base on my experience, no broker allow us to open interest and no interest account with them at the same time and open hedge position, it just like they give us free money, impossible. We may do it for a few days or a few weeks, but as soon as they find out, they will end it.

#16

Hello.

bongrak:

I checked with Delta AND gave them the link to this thread so that they could check it out BEFORE I posted my input so there is no problem.

Feel free to contact Georgi, Eva, or Gergana (those are the people I normally deal with anyway) at Delta’s Customer Service to verify any of this or get more information.

As far as I’m concerned any broker that has a problem with this, or any other ‘strategy’ or ‘system’ for that matter, is probably also the type of broker that ‘slips’ orders, takes forever to execute orders, or just does not execute orders at all etc. etc. etc. Get the picture! I mean you must remember (I’m sure that I don’t have to tell you) that the interest paid or received is merely interest paid or received from the banks and should not be coming out of the brokers’ pocket anyway so therefore it should make no difference to the broker - that is unless they are not a ‘true’ and honest broker.

Regards,

Dale.

Regards,

Dale.

#17

Dale, thanks for the tips, I tried to chat with someone online but couldn’t get a hold of anyone. May be they still sleeping in Bulgaria :slight_smile:

May be I get use to the well organize platform like Meta Trader 4, I try DeltaStock platform, found it to be very difficult. There is no hedge option either, when I buy 1 and sell 1 of the same currency pair, it cancel each other out, end up closing both of my positions. I do not see swap or interest column either, so I have no idea if they pay or not pay me swap, or how much they pay.

Make sure I understand what you are trying to say. Are you saying that they allow you to open two account with them. One account paying interest and another account do not pay interest. So if you buy 1 gbp/jpy and collect $25 daily interest and they do not charge you daily interest for selling 1 gbp/jpy?
If that is the case, what business do they have, we can just sit on the hedge forever and collect $25 per lot everyday at no risk? I don’t think they are in business for this. Unless you misunderstood me and I misunderstood you.

#18

Hi bongrak,

I don’t know when you tried to contact them - all I can tell you is that Bulgarian time is GMT+3.

As far as hedging positions on their platform is concerned - yes you can hedge - you just enable the ‘trade with logical orders’ option on the platform.

As far as the interest paying / receiving accounts and interest free accounts are concerned - yes - you and I do understand each other - and yes - you can open two accounts with them - one interest free - and the other a ‘normal’ interest paying / receiving account.

So if you buy 1 gbp/jpy and collect $25 daily interest and they do not charge you daily interest for selling 1 gbp/jpy?

To answer: on a ‘normal’ account (with them) you WOULD collect the $25 and you WOULD pay interest on the short position - BUT - on the interest free account - you would NOT pay interest on the short position.

Like I said before - it makes absolutely no difference to them whatsoever - the interest paid / received is not coming out of their pockets - they are JUST a broker - that’s all. And that my friend is how a ‘true’ broker is supposed to operate.

One thing I must clarify though is that the ‘interest free’ account is, however, subject to service fees - but the service fees are far less than the interest paid / received on a ‘normal’ account - so your hedge system will work no problem.

Here are the replies that I received from them when I enquired about this system i.e. before posting my original post:

I�d like to tell you that anyone can open an interest free account at Deltastock. You can even have 2 accounts 1 �normal� and the other interest free. There are no restrictions regarding this.

and

Concerning your question regarding trading with interest earning positions. Many traders use carry trades as part of their strategy. Here at Deltastock, we have absolutely no restrictions about the way you trade and the strategy you implement. Through the long run, trading with interest earning currencies can be very profitable, mostly due to the fact that these currencies tend to trend better.

and

Your idea about hedging in this manner is interesting and could be extremely profitable and above all risk free

The interest free accounts that we offer are also called Islamic accounts. They are interest free; since Islam does not allow taking or receiving interest. The catch is, that instead of interest a fee is charged to all rolled over positions, [B]regardless the currency pair[/B]. In our case this fee is 2.5 EUR for every 100 000 traded units. I don�t know of a broker that offers interest free accounts with absolutely no service fees; if you find one please share them with me.

That kind of ‘sums it up’ does it not.

I do know that today (06/06/2007) is a public holiday in Bulgaria though - so try and contact them tomorrow.

Regards,

Dale.

#19

Thanks, that is interesting, I’m sure will try to contact them again. I hope that the fee is only one time and not daily, because I know a few brokers that offer interest free and charge no service fee at all beside regular spread, but the problem is, we have to either have regular or interest free account with them, we cannot have both. If DeltaStock allow both type of account that is great, and if they allow both account to share margin, that even less work for us :slight_smile:

So far I only use interest free brokers in the US, but if this work out, it worth to try this system with oversea brokers. It is good to spread our risk and not put all eggs in one basket :slight_smile:

Thanks

#20

Hi,

The way I read it I think that it would be a daily fee:

The catch is, that instead of interest a fee is charged to all rolled over positions, [B]regardless the currency pair[/B].

In other words: ‘all rolled over positions’ would refer to the daily roll over.

Anyway - not sure - but you contact them tomorrow - they’re always eager and willing to help and answer questions.

I can’t see how this would be a problem though anyway i.e. it is a ‘fixed’ EUR amount per 100 000 units which, I’m sure, if you do the calculation, is still less than the daily interest to be earned on GBP/JPY on a normal account. All it means is that your daily profit will be slightly less than it would be if the ‘interest free’ account was actually REALLY ‘interest free’ or 0% or 0 charges or 0 commission.

Put it this way - if I was going to put up the kind of money needed to make a ‘real’ profit or ‘living’ out of this ‘hedge’ system - I’d rather make a little less and trade with Delta - than go to any other broker EVEN although the ‘interest free’ account at another broker may indeed be 0% interest with 0 charges or 0 commission.

Regards,

Dale.