FX Strangulation by Triangulation

Posted by on Jul 29, 2014 in ArbMaker News! | No Comments

Running Forex pairs in ArbMaker differs from equities in critical ways, especially at the intraday level. Here, for example, are a few points worth considering very carefully:

  • Spreads on many FX instruments can be significantly difficult to cover in a pairs trade – all the more so at higher frequency intervals like 5 and 15 minutes
  • Cointegrated relationships change/break faster at higher frequency levels and require careful monitoring
  • FX is particularly volatile due to near daily rafts of macro-economic announcements
  • It is much harder to dilute risk in FX due to fewer available instruments and the dominant influence of the USD in the market

The typical use of easily available high leverage for FX trades amplifies the downside of all of the above. And on top of all this trading triagular FX pairs can make it all worse. That is to say pairs such as EURGBP/EURUSD where EUR appears on both sides of the trade.

Depending on the order of the EURs these ‘triangles’ either cancel out or double up a short/long position. Tricky to trade and, for the unwary, can lead to big holes in one’s trading capital.

If you do not want to risk them simply filter the triangles out of your Scheduler Job options like this:


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