Creating and testing arbitrage strategies - page 8

[GaryKa]

papaklass: ... Your link in the previous post refers to tick value, not to margin calculation. They are different things.

Perhaps you are right, and it just seemed to me that a certain "peculiarity of calculation" from MT was (is) popping up in different places.

...
To sum it up, profit of BUY and SELL trades is calculated according to different formulas. These formulas do not depend on the profit sign (positive or negative). But due to almost no real transaction closures, profit is calculated using the formula for closing a BUY deal.

Renat, please study the matter again (profit and margin calculation) as I had previously misled you with my then primitive notions. Sorry. ...

[GaryKa]

Sorry for the late reply.

I understand your point about the lots.

GaryKa: An answer with numbers to the question: "How do you calculate volume for a cross pair? Show me with or without lots. For example, how do you compare volumes on EURCHF and AUDNZD?"

papaklass : To find out the difference in lots, I divide the rates of major currencies standing in the numerator. The pledge currency is the currency in the numerator.
EURUSD / AUDUSD -> 1.36368 / 0.90639 = 1.50451, i.e. volume of an open position on AUDNZD should be 1.50 times more than on EURCHF.

The number 1.5 means that the volume of 1 lot of AUDNZD (in USD) is about 1.5 times more than 1 lot of EURCHF (in USD). And multiplying by multipliers (volume values at real banks) we obtain figures in USD for comparison. So it's the same as we talked about before, you are reducing to one unit of measurement. At first I understood it in a different way... But never mind.


Now for the margin. Margin has never been calculated on purpose, I did not have the need. My reasoning about calculating margin (I thought it should be "should", but it should be "in my opinion") should be considered as an "ideal" margin. In reality both brokers (at least the ones I looked at) and MTs calculate margin differently, similar to the examples you gave above.

Another example of volume calculation for arbitrage "correcting the real data" sent to me in a private message.

P.S. I have a request, in the future when you give examples with figures (real quotes), specify both bid/ask prices, makes it easier to understand.

[GaryKa]

You do not have a market-neutral position, although it is perfectly equal weighted by instrument.
The proof is your floating portfolio equity. This is why the market-neutral model is neutral, as it does not care how the market behaved, and the equity is "roughly speaking" straight.

You will see the same portfolio equity as you have if you hold an equally weighted portfolio (buy AUDJPY, buy EURCHF, buy GBPCAD) or one (buy AUDJPY, sell GBPCHF, buy EURCAD) where each symbol is traded on the same margin as any of the symbols in your portfolio.

In the figure (arrows, direction of movement of equity, the thickness of the volume of this capital), your position is on the left side and a composite market-neutral position, which consists of 2 simple elements, each of which in turn is also a market-neutral position, is on the right side as an example.
Here is the complete list of"simple" equally weighted market-neutral positions for 8 major FX currencies. The way of writing it is clear to everyone, but of course it is better to use the method of writing the portfolio from here (in degrees).

Let's interrupt our conversation for now, I won't be able to reply for the time being.