What is the Smart Bridge Technology thing - hedging currency risks? - page 2

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moskitman, do you mean hedging, or not exactly? As I understand it, hedging is when a position in an underlying asset is defended by buying or selling a derivative on it. How about you?
 
sayfuji:
About Smart Bridge - ask us for a link. moskitman, do you mean hedging, or not really? As I understand it, hedging is when a position in an underlying asset is defended by buying or selling a derivative on it. How about you?

With us it is slightly different: we do not have one particular instrument traded, but a basket of orders including all (or almost all) pairs containing a particular currency.
For example, the AUD is weakening. By selling it against other currencies you will have a higher probability of making a profit than by trading one currency pair. The advantage of this approach is in the inertia of a Currency, as opposed to a currency pair.

Naturally, there are some pitfalls. One of them is the difference of price movement in pips and in value terms, another is determination of a moment to enter the market, the third is the difficulty of algorithmization, the fourth is practical impossibility to calculate anything (we mean expected profit, time of its achievement, relative and absolute drawdown, etc.), the fifth ... sixth...(more?).

 

moskitman:

For example, the AUD is weakening. By selling it against other currencies you can make a profit more likely than by trading a single currency pair. The advantage of this approach is the inertia in the behaviour of the VALUT, as opposed to a currency pair.

I have not understood it. Can you be more specific? What do you mean by "against other currencies"? That's what a currency pair(s) turns out to be, isn't it?
 
OK, I'm just getting home.
 
moskitman:


For example, the AUD is weakening. By selling it against other currencies you can make a profit more likely than by trading a single currency pair. The advantage of this approach is the inertia of the Currency, as opposed to a currency pair.

The expected gain from a fall/rise of one currency (AUD) may be negligible compared to the possible total loss from the rise/fall of the other currencies which make up the basket.
 
OnGoing:
The expected gain from the fall/rise of one currency (AUD) may be negligible compared to the possible total loss from the rise/fall of the other currencies that make up the basket.
Agreed! I was thinking the same thing immediately.
 
Swetten:
I didn't get the hang of it. Can you be more specific? What do you mean "relative to other currencies"? That's what a currency pair (pairs) turns out to be, isn't it?

So...
The starting point is weakening of the Australian dollar.
Trading decisions: sell AUDUSD, sell AUDCHF, buy EURAUD, sell AUDJPY, ... etc.
Thus, a basket of orders is formed for seven (in the long term seven) currency pairs which contain the currency to be eventually bet on falling.
The beauty of the Currency market (as opposed to the stock market) is that it is in fact a closed system, which means that if the Yen, for example, due to its own political movement has caused you to lose an order on AUDJPY, and the Aussie keeps falling in total, then orders on other currencies will compensate for this loss with their profits. (Speaking of hedging).
The reason why this happens is that the currency Pairs quotes have to keep in a kind of "balance" with the market (that is "with the values of currencies") in order to avoid large (very large!) arbitrage situations.

So regardless of the "relationship" of the other currencies to each other, the AUD-accounted market segment will reflect the true value of the currency in terms of the value of the others.

 
moskitman:

So...
Initial position - the Australian dollar is weakening.
Trade decisions: sell AUDUSD, sell AUDCHF, buy EURAUD, sell AUDJPY, ... etc.
Thus, a basket of orders is formed for seven (in the long term seven) currency pairs which contain the currency to be eventually bet on falling.
The beauty of the Currency market (as opposed to the stock market) is that it is practically a closed system, which means that if the Yen, for example, due to its own political movement has caused you to lose an order on AUDJPY and the Aussie keeps falling in total, orders on other currencies will compensate for this loss with their profits. The reason for this is that the price of VARIABLE is forced to keep a certain "balance" with the market in order to avoid large (very large!) arbitrage situations.

So regardless of the "relationship" of the other currencies to each other, the AUD segment of the market will reflect the true value of the Currency in terms of the value of the others.

Wrong, the whole market is not tied to one kangaroo. And apart from the yen, the franc could also go down. Then you will have to wait a long time to get at least in b/w.

Your idea of equilibrium and a closed market is not confirmed in practice. Hence, by the way, the conclusion that by this TS you either do not trade, or just started, and that you were lucky so far.

 
On the whole, the reasoning seems logical. Confusing as always are the subtleties. If we see the Aussie weakening, that is a clear trade signal to sell its main and most significant pair. We should sell it and make profit. If the signal is false - we close the loss. According to the suggested scheme, we spread the same operation to the correlated pairs. Where is the profit in case of a false signal?
That is, if I am sure of the fall of the Aussie, I will earn on one pair, but in the case of a mistake I will incur the loss even if I have spread the transaction over seven pairs.
So why complicate your life?
 
moskitman:

So...
Initial position - the Australian dollar is weakening.
Trade decisions: sell AUDUSD, sell AUDCHF, buy EURAUD, sell AUDJPY, ... etc.
Thus, a basket of orders is formed for seven (in the long term seven) currency pairs which contain the currency to be eventually bet on falling.
The beauty of the Currency market (as opposed to the stock market) is that it is in fact a closed system, which means that if the Yen, for example, due to its own political movement has caused you to lose an order on AUDJPY, and the Aussie keeps falling in total, orders on other currencies will compensate for this loss with their profits. (Speaking of hedging).
The reason why this happens is that the currency Pairs quotes have to keep in a kind of "balance" with the market (that is "with the values of currencies") in order to avoid large (very large!) arbitrage situations.

So regardless of the "relationship" of the other currencies to each other, the AUD-accounted market segment will reflect the true value of the Currency in terms of the value of the others.


So you are saying that currency indices are more trending than individual currencies?
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