Thoughts on some of the absurdity of multi-currency analysis. - page 8

 
vasya_vasya >>:

На мой взгляд это не так. Диверсификация эффективна в любых случаях, когда мы используем не один и тот же инструмент для создания портфеля. Эта вещь работает почти всегда.

Если есть какие то аргументы против ее применения - выкладывайте, будет интересно почитать.

Example:

You have three open positions: GBPJPY, USDJPY, EURUSD. This means you have a constant number of 4 currencies: EUR, GBP, JPY and USD.

Profit:

If you have a deposit in USD, then your profit only depends on the exchange rates of EURUSD, GBPUSD and USDJPY.

If your deposit is in EUR, then your profit, respectively, depends only on the rates of EURUSD, EURGBP and EURJPY.

Note that profits in USD will be different from profits in EUR at the EUR/USD exchange rate.

Diversification:

What is the reduction in risk if you have four currencies in your wallet instead of two?

 
Avals >>:
поставщики ликвидности могут как угодно рассчитывать свои биды и оффера, хоть через мажоры - это их дело и нет никакого на то регламента. На ECN и бирже каждый может создавать ликвидность выставляя ордера внутри текущего спреда (сужая его). Поэтому спред на кроссах не зависит на прямую от мажоров и м.б. гораздо меньше чем сумма спредов на соответсвующих мажорах

Right, that's what I wrote about. Only the sum of the major spreads has nothing to do with the spread of even the corresponding synthetic cross.

Liquidity on crosses is always maintained by the liquidity of the majors. Narrow spreads on crosses are, as I have already written, the result of orders on these crosses by ECN participants. But the cross liquidity created by these ECN participants pales in comparison to the liquidity provided by the majors for the cross.

 
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Example:

You have three open positions: GBPJPY, USDJPY, EURUSD. This means you have a constant number of 4 currencies: EUR, GBP, JPY and USD.

Profit:

If you have a deposit in USD, then your profit only depends on the exchange rates of EURUSD, GBPUSD and USDJPY.

If your deposit is in EUR, then your profit, respectively, depends only on the rates of EURUSD, EURGBP and EURJPY.

Note that the profit in USD will be different from the profit in EUR at the EUR/USD exchange rate.

This is in the case of trading without leverage. When you trade with leverage, the deposit is only a pledge for opening positions. If you have a deposit in quid and open on all without leverage buy EURUSD, then yes, you do not depend on the currency pair - in fact, you have transferred the deposit in euros and become independent of exchange rate changes - the account will contain one and the same amount of euros. But if you have opened with a leverage of, for example, 10, then you have not just transferred your deposit into euros, but also made a bet on EURUSD rate change - the value of your deposit will not be constant in any of these currencies at EURUSD rate change.
 
getch писал(а) >>

Right, that's what I wrote about. Only the sum of the major spreads has nothing to do with the spread of even the corresponding synthetic cross.

Liquidity on crosses is always maintained by the liquidity of the majors. Narrow spreads on crosses are, as I have already written, the result of orders on these crosses by ECN participants. But the cross liquidity created by these ECN participants pales in comparison to the liquidity that the majors provide for the cross.

it is possible, I did not compare these liquidity because it is not clear how to do it

 
I have to send a mail to Bazel, maybe things have changed, but as far as I remember all payments were made in dollars, they still are
 
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Example:

You have three open positions: GBPJPY, USDJPY, EURUSD. This means you have a constant number of 4 currencies: EUR, GBP, JPY and USD.

Profit:

If you have a deposit in USD, then your profit only depends on the exchange rates of EURUSD, GBPUSD and USDJPY.

If your deposit is in EUR, then your profit, respectively, depends only on the rates of EURUSD, EURGBP and EURJPY.

Note that profits in USD will be different from profits in EUR at the EUR/USD exchange rate.

Diversification:

What is the risk reduction if you have four currencies in your wallet instead of two?

Generally, the point of diversification is that the noises that are supposedly present in exchange rates are not known to add up in amplitude when creating a portfolio. The noises actually overlap each other. But the share of currencies in the portfolio decreases. In other words, ideally a portfolio consisting of 2 currency pairs has noise amplitude 2 times less than one currency.

In other words, a 200 pips loss on the Euro, you do not have this loss on other pairs, hence, the entire portfolio is not affected as much as if you had only one currency pair in your portfolio. Therefore the drawdown of the portfolio is less than the drawdown of one particular pair.

Therefore the more pairs in the portfolio, the better for risk reduction - but of course this is a crude hypothesis that does not always work.

 
The point of diversification is to reduce the drawdown of the resulting curve. To achieve this, the correlation of portfolio returns should be minimal and preferably even negative - Markowitz proved this in his theory. But the portfolio instruments should in principle be profitable, so constant correlation = 1 is not suitable, otherwise the ideal portfolio would be buy on EURUSD and simultaneously sell on the same))))
 
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Example:

You have three open positions: GBPJPY, USDJPY, EURUSD. This means that you have a constant number of 4 currencies: EUR, GBP, JPY, USD.

I don't know how important this assumption is to you, but it is wrong, because you only have a constant amount of GBP and EUR. The yen and the quid vary in their volume.

 
vasya_vasya >>:

Не знаю на сколько важно для вас это предположение, но оно не верно, поскольку у вас неизменное количество лишь фунта и евро. Йена и бакс изменяются в своем объеме.

Justify. My statement is true for any shoulder.

 
BLACK_BOX >>: еще одно следствие, как бы кроссы и их спреды не уговаривали нас торгануть ими, теоретически, торгануть их через мажоры будет рациональнее. Если это не так, то по всей видимости это замануха ДЦ.

On the interbank market most likely YES, on the brokerage... Depends on the reliability, if the reliability of the BC is tolerable - it is more profitable through crosses.