Hedging EUR/USD and USD/CHF?

[Sheldon]

If you sell the EUR/USD and buy the USD/CHF, and because they are opposites, your profit/loss should be the spread, correct?

If you are using 1:100 leverage, you are using $2000 worth of capital.
If you sell 1 lot the EUR/USD, Interest per day is 5.9 and if you buy 1 lot USD/CHF interest is 8.9.

That is $14.8 per day, or ~$5091 (20 trading days a month, times 12 months, + triple interest on Wednesdays)

So then 5091/2000=2.5456*100=254.56% annualy?

Is my math off, or my logic incorrect? Never done this before. Thanks...!

[Sheldon]

Well that works great if the EUR/USD goes down and USD/CHF goes up, but it doesn't always work like that...

[mister_doodi]

It makes sense and all new people to forex ponders or tries this but it dosent work. You end up going long on EUR/CHF.

Plus the math is off. You need to buy more of USD/CHF because it costs $1,000 to buy 1 lot of EUR/USD and $809 to buy 1 lot of USD/CHF. Plus you have to take account correlation and average movement through the ATR indicator.

[mister_doodi]

And, another side note, you get interest everyday so you dont have to calculate 20 days + triple wednesdays.

You can either do (daily interest * 30) or (daily interest * 365)

30 being average days in a month. With doing that I got extra $400 from your figures.

[mister_doodi]

Another side note, lol, I studied this intensely...

You can open up extra mini lots periodically. Close your order like say after 6 months and your account will have $4700. You can now open up little more than 2 lots of each pair. You'll lose money on spread but thats only like $60. So now your pusing 350%+.

It could work with with the pairs you mentioned but you have to triangulate it with another pair and that still wont produce a perfect hedge.

[Jonathan]

Can't you just buy right before the rollover time and then sell out 5 minutes later after rollover or something?

I'm sure people have though of that before, so I assume it doesn't work, but why?

[Sheldon]

Yes you can, but you loose on the spread.

[mister_doodi]

Yeah spread is always higher than the interest. GBP/JPY pays out $25 but you pay $80 for the spread. USD/JPY is a little better, it pays out $13 and $30 for the spread. Also, your locked into one direction, for example USD/JPY, you only get interest if your long so if the price goes aginst you, you lose that also.

[Sheldon]

Originally Posted by mister_doodi

Another side note, lol, I studied this intensely...

You can open up extra mini lots periodically. Close your order like say after 6 months and your account will have $4700. You can now open up little more than 2 lots of each pair. You'll lose money on spread but thats only like $60. So now your pusing 350%+.

It could work with with the pairs you mentioned but you have to triangulate it with another pair and that still wont produce a perfect hedge.

Well nothing is ever perfect, but as long as your gains in interesting are offsetting the profit/loss on pips you'll be alright.

I'm still reading this book on foreign exchange, when I have a better understanding of what's going on I'll try this again

[mister_doodi]

Oh there are perfect hedges, I'm using a hedge that is 99.8 perfect the only if it weren't for the spread it would be 100% perfect.