TheEconomist's Forex Arbitrage Blog

Looks good.

 

I'm going to have a live test at Spacevision FX in switzerland next week. They only offer 1:100 leverage, but that will also give a yearly gain of about 100%.

 

I'm looking for a big broker, offering spots and futures with swap free accounts in order to invest a larger sum. I find it a bit risky to give my money to any bucketshops out there. On the other hand, perhaps anyone could have an inscurance against the broker going bankrupt, that would be great if you could insure your first time deposit. Any idea?

 

Andi.

Looks good.

 

I'm going to have a live test at Spacevision FX in switzerland next week. They only offer 1:100 leverage, but that will also give a yearly gain of about 100%.

 

I'm looking for a big broker, offering spots and futures with swap free accounts in order to invest a larger sum. I find it a bit risky to give my money to any bucketshops out there. On the other hand, perhaps anyone could have an inscurance against the broker going bankrupt, that would be great if you could insure your first time deposit. Any idea?

 

Andi.

 

We at least escaped the risk of burning our cash on a daily basis... Can't ask for more...

100% ROE seems a good profit for you. Perhaps I could have got for real the same profit with the Swap Arbitrage, but it's far from enough for my cash.

 

Bogdan

Hi,

 

You will not find a big broker offering spots and cfds with swap free accounts.

All forex brokers have credit risk even if regulated...and us regulated fx brokers cannot offer cfds. So you end up with non us regulated fx brokers if you want cfds. If the broker is offering swap free accounts I would say is riskier that one not offering it, I would bet that most of swap free accounts are not fully hedged. Big brokers do not want this type of business they want to capture customers offering them lower risk structure and sell their reputation. So if you want higher return you will find more risk (most of the times)...

If you want lower risk in this strategy use 2 accounts in two well known brokers...Look the NFA figures of each of them, customers, Net capital, etc. I ended up with CMSfx and FXCM. No one cannot guarentee they will not go bankrupt (ie REFCO). I know you have to rebalance both account...

just my 2 cents...

Juan

Bog,

Is it possible to arb during the unhedged hour when Globex is shut down or CFds are not traded at that time? The arb would be using spot and cfd..if the basis is hig ---> arb.

Thanks in adavance

 

Juan

Hi,

 

You will not find a big broker offering spots and cfds with swap free accounts.

All forex brokers have credit risk even if regulated...and us regulated fx brokers cannot offer cfds. So you end up with non us regulated fx brokers if you want cfds.

 

Juan, I said that probably in my first post of the blog. We do, in first instance, a regulation arbitrage. We sell the regulated broker and buy the non-regulated one. It is a risk. Aren't bond arbitrageurs doing , perhaps similar things, using the most risky municipal bonds and the most safe they can access ? Of course the high-yield bond has a default risk bigger : this is why it has a higher yield. (And may I say, the spot-to-futures A looks the hell like Bond Arbitrage). This business is not absolutely without risk. There is still risk, yet we arb successfully in the idea the broker's default won't hit us...remember picking nickels in front of a steamroller.

 

 

Bog,

Is it possible to arb during the unhedged hour when Globex is shut down or CFds are not traded at that time? The arb would be using spot and cfd..if the basis is hig ---> arb.

Thanks in adavance

 

Juan

 

I know...you see profit doubled in half of unhedged hour, close all, then place trades back upon Globex reopen. I thought about that.

Two things:

1. It may be, but not tested, a "Trade is disabled" error when attempting to close the futures.

2. Even if it may work, the broker will not have the capacity to hedge our close, Globex being shut down. So this would make the broker angry and we don't want that.

 

Regards,

Bogdan

Bog, can you explain in greater detail how you will profit in the unhedged Globex hour?

Your idea is to arb spot and Cfd?

Thxs

 

Juan

Bog, can you explain in greater detail how you will profit in the unhedged Globex hour?

Your idea is to arb spot and Cfd?

Thxs

 

Juan

 

Hmm, I thought I was pretty clear. Let's go a bit underground.

The profit in that screen capture shows $335. Say that night, on my time, at 12:45 PM, 15 minutes before Globex "respawn", the profit, unhedged, in my account, is $670. Double. Suppose at least closing the futures is allowed. Then I could close the trades with the "doubled" profit, and reopen after Globex restart. Not only reopen in the same parameters, but also compounding. Upon restart, the spot to futures basis is re-established where it should, and my account will grow, continuously, from $335 to $1000 (say that's the calculated bound). With two "minor" adjustments:

1. it starts from $670 instead of $335

2. it goes more than slightly beyond $1000, because of compounding.

Compounding is safe and honest. But closing the futures when the broker can't mimic and hedge our trading is unfair. Even if it would be allowed, it would still leave the broker unhedged , and the $335 difference from old profit of $335 to the new profit of $670 would be from his pocket.

DON'T DO IT!

It is against our "deontological" code as arbitrage traders to be unfair with the broker whose trading offer we use in order to arbitrage! It's like biting the hand that feeds you. So, it's a NO NO, like "doubling over night" idea trying to use the futures jump on expiry.

 

Let's keep the things as they are. I am not teaching anyone how to cheat on the broker. If the broker sees any arbitrageur trying to cheat by letting him exposed, it is entitled to stop his trading. Yes, there are free meals. No, we don't steal the broker's meal and call that "free meal". I know Juan understands that, this is for others reading this blog that might try to use unfair arbitrage windows based on broker's mistakes of organisation.

 

Regards,

Bogdan

Tried to do the arb with Spacevision FX. I asked them to provide an Swap Free account with no limitation in holding positions and they agreed. After the first rollover I got Swap debited and also received a mail from dealing desk, telling me that I'm not allowed to hedge Spot and CFD's...

 

After some angry mails I got my paid swap back, they did a failure in account opening, but they forced me to close my positions and told me, I should no "normal trading"... I lost 40$ when closing my positions...

 

These Bastards!

Tried to do the arb with Spacevision FX. I asked them to provide an Swap Free account with no limitation in holding positions and they agreed. After the first rollover I got Swap debited and also received a mail from dealing desk, telling me that I'm not allowed to hedge Spot and CFD's...

 

After some angry mails I got my paid swap back, they did a failure in account opening, but they forced me to close my positions and told me, I should no "normal trading"... I lost 40$ when closing my positions...

 

These Bastards!

 

SOBs! Now you can clearly see the evil promoted by NFA. Nobody likes hedgers and arbs. And once that the entire retail market has been taught that trading must be normal (to be read: speculative, without knowing the final result) , it will be hard for someone to teach them give up this approach! What we should do is simply to migrate from MetaTrader and FX brokers to real futures brokers. But damn we need cash for that!

Tried to do the arb with Spacevision FX. I asked them to provide an Swap Free account with no limitation in holding positions and they agreed. After the first rollover I got Swap debited and also received a mail from dealing desk, telling me that I'm not allowed to hedge Spot and CFD's...

 

After some angry mails I got my paid swap back, they did a failure in account opening, but they forced me to close my positions and told me, I should no "normal trading"... I lost 40$ when closing my positions...

 

These Bastards!

 

SOBs! Now you can clearly see the evil promoted by NFA. Nobody likes hedgers and arbs. And once that the entire retail market has been taught that trading must be normal (to be read: speculative, without knowing the final result) , it will be hard for someone to teach them give up this approach! What we should do is simply to migrate from MetaTrader and FX brokers to real futures brokers. But damn we need cash for that!

 

But with real futures brokers you would not find the conditions to do this arbitrage...

Tried to do the arb with Spacevision FX. I asked them to provide an Swap Free account with no limitation in holding positions and they agreed. After the first rollover I got Swap debited and also received a mail from dealing desk, telling me that I'm not allowed to hedge Spot and CFD's...

 

After some angry mails I got my paid swap back, they did a failure in account opening, but they forced me to close my positions and told me, I should no "normal trading"... I lost 40$ when closing my positions...

 

These Bastards!

 

SOBs! Now you can clearly see the evil promoted by NFA. Nobody likes hedgers and arbs. And once that the entire retail market has been taught that trading must be normal (to be read: speculative, without knowing the final result) , it will be hard for someone to teach them give up this approach! What we should do is simply to migrate from MetaTrader and FX brokers to real futures brokers. But damn we need cash for that!

 

But with real futures brokers you would not find the conditions to do this arbitrage...

 

Sure, Jim, but we could use the either the Spot-to-Futures B - the missalignment version - (if possible) or Oil Arbitrage with them!

 

This is an open request to all my readers: anyone traded municipal bonds ? If yes, with which broker, account sizes, margins, platforms, etc...

 

Regards,

Bogdan

Andi,

 

On trading USD/JPY (Spot) against same pair CFD, the brokers would notice we are hedging.

I wonder if they would notice the following:

Trading (GBP/USD / JYP/USD) CFD against Spot GBP/JPY.

 

Regards,

 

Mr. H

Andi,

 

On trading USD/JPY (Spot) against same pair CFD, the brokers would notice we are hedging.

I wonder if they would notice the following:

Trading (GBP/USD / JYP/USD) CFD against Spot GBP/JPY.

 

Regards,

 

Mr. H

 

I heard they aren't so smart. Many can't even see the hedge in Swap Arbitrage. This could work. However, results will decrease a lot, because of the higher margin requirement on CFDs. Look here:

 

Required margin is like : 1/3 (fx) + 2/3 (cfd) = 1 ; "working capital" = 1/3 = 0.33 ; results are considered 100% here;

 

If you use two cfds: 1/6 (fx) + 2/6 (cfd) + 2/6 (cfd) = 5/6 = 0.83 ; "working capital" = (1/6)/0.83 = 0.20 ; results at 60% (0.20/0.33*100);

 

If you use two fx: 1/3 (fx) + 1/3 (fx) + 2/3 (cfd) = 4/3 =1.33 ; "working capital" = (1/3)/1.33 = 0.2481 ; results at 75% (0.2481/0.33*100);

 

Better use two fx rates and a cfd, but see the impact of swaps!

 

Regards,

Bogdan

Andi,

 

On trading USD/JPY (Spot) against same pair CFD, the brokers would notice we are hedging.

I wonder if they would notice the following:

Trading (GBP/USD / JYP/USD) CFD against Spot GBP/JPY.

 

Regards,

 

Mr. H

 

I heard they aren't so smart. Many can't even see the hedge in Swap Arbitrage. This could work. However, results will decrease a lot, because of the higher margin requirement on CFDs. Look here:

 

Required margin is like : 1/3 (fx) + 2/3 (cfd) = 1 ; "working capital" = 1/3 = 0.33 ; results are considered 100% here;

 

If you use two cfds: 1/6 (fx) + 2/6 (cfd) + 2/6 (cfd) = 5/6 = 0.83 ; "working capital" = (1/6)/0.83 = 0.20 ; results at 60% (0.20/0.33*100);

 

If you use two fx: 1/3 (fx) + 1/3 (fx) + 2/3 (cfd) = 4/3 =1.33 ; "working capital" = (1/3)/1.33 = 0.2481 ; results at 75% (0.2481/0.33*100);

 

Better use two fx rates and a cfd, but see the impact of swaps!

 

*Please note I chosed the fractions to simplify explanation: the totals, as 1, 0.83, 1.33, don't necesarily mean margin used will go up, or down, unless you allow that; Given your margin used to be constant, use the numerator and denominator only to find out the internal margin allocations.

 

Regards,

Bogdan

Bogdan,

 

Yes, I understand your idea.

I agree that using 2 component strategy (USD/JPY Spot against CFD JPY/USD) requires less margin than using 3 components

strategy.

I think if a broker is against hedging trading forex spot with its futures, then using 3 component strategy might be a solution.

 

Regards,

 

Mr. H

Bogdan,

 

Yes, I understand your idea.

I agree that using 2 component strategy (USD/JPY Spot against CFD JPY/USD) requires less margin than using 3 components

strategy.

I think if a broker is against hedging trading forex spot with its futures, then using 3 component strategy might be a solution.

 

Regards,

 

Mr. H

 

Sure, I'm thinking at this too, especially for the next investment cycle.

 

Regards,

Bogdan

Did you get any Forex that don't charge swaps, or interst, or don't make roll over?

Did you get any Forex that don't charge swaps, or interst, or don't make roll over?

 

Well, I got the feed I wanted, I made money, and I was swap charged...