In Part 2, Vadim Epstein of Emet Trading Solutions continues his analysis into using hedging when trading.
This guest article was written by Vadim Epstein from emet-trading-solutions.com
Let’s continue reviewing the topic of hedging opportunities that we started in the first part of the article.
Gap Hedging
This strategy shows one more purely technical hedging technique that does not require any “feel for the market” or a “magic” indicator, so it can be used by new traders.
If you look closely at the contract specifications of different brokers, you can note that the closing by “Take Profit” is made according to its level even if such a price has not been in the flow of market quotations. On the contrary, opening of a pending order is made quite often on the nearest real price. Therefore, considering that the price is actually not moving smoothly and makes big or small jumps, it’s possible to extract its income on the so-called “roughness” of the market.
In the simplest case, instead of the “Take Profit” in the existing strategy, you can place a pending order to lock in profits. When it turns to the market, it must be closed back-to-back to the main counter order. If your broker has five digits in the quotation, the profit will almost always be slightly larger than when using “Take Profit” if you are going to use the counter-closing orders “OrderCloseBy ()” function.
But nothing prevents us from going ahead and forming a coherent strategy based on price gaps, which are gaps in the flow of quotations.
Hedging at time intervals of the investment range
Maximum gaps occur between the closing and opening of the market. It’s not always clear which way prices will jump by Monday, but in some cases it is quite obvious. If during the week the currency was clearly losing ground, then over the weekend it has a very low chance of going up. Government offices are closed on the weekend, and news that affects the economy is extremely rare, so the trend, if it is already formed, is likely to continue unchanged.
This figure shows an example of a gap in prices between weeks.
In this case, once again, hedging can help out. If you use the “Take Profit” to fix profit, then the order will be closed on it at a profit, but it is possible that you could get three times as much income since the price jump was three times higher. If the pending order will be set in the “Take Profit” place, it will be opened to the nearest fair price and reliably detects all possible amounts that can be extracted from the price jump between trading sessions.
At the market opening on 07/09/2014, the price was: 1.61673.
1.63246 - 1.61673 = 0.01573.
This much was the gap between trading sessions.
$200,000 * 0.01573 = $3,146
This is the size of the equity in the account.
Next, you need to make an immediate counter-closing order by taking a profit. Naturally, it is necessary to take into account the spread and additional margin limitations, which don’t allow orders to be opened with full use of leverage. Therefore, it would be better to round off the amount from $3,146 to $3,000, but in this case the capital increased by 15 times in just two days with minimal risk—more than paying for soft rig, which is necessary to use in this strategy.
It’s natural to wonder how often do such opportunities happen for you to be able to use this strategy. Let’s consider the intersession gaps on the popular GBP/USD currency pair over the past 10 weeks.
The horizontal axis shows the size of the weekly bars. The vertical axis shows the value gap that followed this bar. As the figure shows, the possibilities for using this strategy were offered weekly, and only once were trading results unprofitable. For more information, a linear approximation by point was made: black line and the formula to calculate the approximate size of the expected gaps in prices on the amount of the weekly bar.
Conclusion
1. Although at first glance the hedging instrument appears meaningless, taking into account the number of technical nuances of trading, it can be used for strategies enhancement or creating separate trading systems.
2. Hedging efficiency depends directly on the code quality of supporting and basic programs that are used in trading, so it is especially important to order them from a reliable and verified service provider.
This guest article was written by Vadim Epstein from emet-trading-solutions.com
Let’s continue reviewing the topic of hedging opportunities that we started in the first part of the article.
Gap Hedging
This strategy shows one more purely technical hedging technique that does not require any “feel for the market” or a “magic” indicator, so it can be used by new traders.
If you look closely at the contract specifications of different brokers, you can note that the closing by “Take Profit” is made according to its level even if such a price has not been in the flow of market quotations. On the contrary, opening of a pending order is made quite often on the nearest real price. Therefore, considering that the price is actually not moving smoothly and makes big or small jumps, it’s possible to extract its income on the so-called “roughness” of the market.
In the simplest case, instead of the “Take Profit” in the existing strategy, you can place a pending order to lock in profits. When it turns to the market, it must be closed back-to-back to the main counter order. If your broker has five digits in the quotation, the profit will almost always be slightly larger than when using “Take Profit” if you are going to use the counter-closing orders “OrderCloseBy ()” function.
But nothing prevents us from going ahead and forming a coherent strategy based on price gaps, which are gaps in the flow of quotations.
Hedging at time intervals of the investment range
Maximum gaps occur between the closing and opening of the market. It’s not always clear which way prices will jump by Monday, but in some cases it is quite obvious. If during the week the currency was clearly losing ground, then over the weekend it has a very low chance of going up. Government offices are closed on the weekend, and news that affects the economy is extremely rare, so the trend, if it is already formed, is likely to continue unchanged.
This figure shows an example of a gap in prices between weeks.
In this case, once again, hedging can help out. If you use the “Take Profit” to fix profit, then the order will be closed on it at a profit, but it is possible that you could get three times as much income since the price jump was three times higher. If the pending order will be set in the “Take Profit” place, it will be opened to the nearest fair price and reliably detects all possible amounts that can be extracted from the price jump between trading sessions.
At the market opening on 07/09/2014, the price was: 1.61673.
1.63246 - 1.61673 = 0.01573.
This much was the gap between trading sessions.
$200,000 * 0.01573 = $3,146
This is the size of the equity in the account.
Next, you need to make an immediate counter-closing order by taking a profit. Naturally, it is necessary to take into account the spread and additional margin limitations, which don’t allow orders to be opened with full use of leverage. Therefore, it would be better to round off the amount from $3,146 to $3,000, but in this case the capital increased by 15 times in just two days with minimal risk—more than paying for soft rig, which is necessary to use in this strategy.
It’s natural to wonder how often do such opportunities happen for you to be able to use this strategy. Let’s consider the intersession gaps on the popular GBP/USD currency pair over the past 10 weeks.
The horizontal axis shows the size of the weekly bars. The vertical axis shows the value gap that followed this bar. As the figure shows, the possibilities for using this strategy were offered weekly, and only once were trading results unprofitable. For more information, a linear approximation by point was made: black line and the formula to calculate the approximate size of the expected gaps in prices on the amount of the weekly bar.
Conclusion
1. Although at first glance the hedging instrument appears meaningless, taking into account the number of technical nuances of trading, it can be used for strategies enhancement or creating separate trading systems.
2. Hedging efficiency depends directly on the code quality of supporting and basic programs that are used in trading, so it is especially important to order them from a reliable and verified service provider.
Clearstream to Settle LCH-Cleared Equity Contracts
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Charlotte reflects on the Summit so far and talks about the culture inside fintech banks today. We look at the pressures that come with scaling, and how firms can hold onto the nimble approach that made them stand out early on.
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Exness expands its presence in Africa: Inside our interview with Paul Margarites in Cape Town
Exness expands its presence in Africa: Inside our interview with Paul Margarites in Cape Town
Exness expands its presence in Africa: Inside our interview with Paul Margarites in Cape Town
Exness expands its presence in Africa: Inside our interview with Paul Margarites in Cape Town
Exness expands its presence in Africa: Inside our interview with Paul Margarites in Cape Town
Exness expands its presence in Africa: Inside our interview with Paul Margarites in Cape Town
Finance Magnates met with Paul Margarites, Exness regional commercial director for Sub-Saharan Africa, during a visit to the firm’s office opening in Cape Town. In this talk, led by Andrea Badiola Mateos, Co-CEO at Finance Magnates, Paul shares views on the South African trading space, local user behavior, mobile trends, regulation, team growth, and how Exness plans to grow in more markets across the region. @Exness
Read the article at: https://www.financemagnates.com/thought-leadership/exness-expands-its-presence-in-africa-inside-our-interview-with-paul-margarites/
#exness #financemagnates #exnesstrading #CFDtrading #tradeonline #africanews #capetown
Finance Magnates met with Paul Margarites, Exness regional commercial director for Sub-Saharan Africa, during a visit to the firm’s office opening in Cape Town. In this talk, led by Andrea Badiola Mateos, Co-CEO at Finance Magnates, Paul shares views on the South African trading space, local user behavior, mobile trends, regulation, team growth, and how Exness plans to grow in more markets across the region. @Exness
Read the article at: https://www.financemagnates.com/thought-leadership/exness-expands-its-presence-in-africa-inside-our-interview-with-paul-margarites/
#exness #financemagnates #exnesstrading #CFDtrading #tradeonline #africanews #capetown
Finance Magnates met with Paul Margarites, Exness regional commercial director for Sub-Saharan Africa, during a visit to the firm’s office opening in Cape Town. In this talk, led by Andrea Badiola Mateos, Co-CEO at Finance Magnates, Paul shares views on the South African trading space, local user behavior, mobile trends, regulation, team growth, and how Exness plans to grow in more markets across the region. @Exness
Read the article at: https://www.financemagnates.com/thought-leadership/exness-expands-its-presence-in-africa-inside-our-interview-with-paul-margarites/
#exness #financemagnates #exnesstrading #CFDtrading #tradeonline #africanews #capetown
Finance Magnates met with Paul Margarites, Exness regional commercial director for Sub-Saharan Africa, during a visit to the firm’s office opening in Cape Town. In this talk, led by Andrea Badiola Mateos, Co-CEO at Finance Magnates, Paul shares views on the South African trading space, local user behavior, mobile trends, regulation, team growth, and how Exness plans to grow in more markets across the region. @Exness
Read the article at: https://www.financemagnates.com/thought-leadership/exness-expands-its-presence-in-africa-inside-our-interview-with-paul-margarites/
#exness #financemagnates #exnesstrading #CFDtrading #tradeonline #africanews #capetown
Finance Magnates met with Paul Margarites, Exness regional commercial director for Sub-Saharan Africa, during a visit to the firm’s office opening in Cape Town. In this talk, led by Andrea Badiola Mateos, Co-CEO at Finance Magnates, Paul shares views on the South African trading space, local user behavior, mobile trends, regulation, team growth, and how Exness plans to grow in more markets across the region. @Exness
Read the article at: https://www.financemagnates.com/thought-leadership/exness-expands-its-presence-in-africa-inside-our-interview-with-paul-margarites/
#exness #financemagnates #exnesstrading #CFDtrading #tradeonline #africanews #capetown
Finance Magnates met with Paul Margarites, Exness regional commercial director for Sub-Saharan Africa, during a visit to the firm’s office opening in Cape Town. In this talk, led by Andrea Badiola Mateos, Co-CEO at Finance Magnates, Paul shares views on the South African trading space, local user behavior, mobile trends, regulation, team growth, and how Exness plans to grow in more markets across the region. @Exness
Read the article at: https://www.financemagnates.com/thought-leadership/exness-expands-its-presence-in-africa-inside-our-interview-with-paul-margarites/
#exness #financemagnates #exnesstrading #CFDtrading #tradeonline #africanews #capetown
