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  1. #1
    Senior Member grindtime's Avatar

    Hedging idea w B.O and Forex .. Need Math help !!!

    I wonder if this tactic would work opening a position in forex the opposite way of placing a binary option?

    Right before news on USD lets say I place a $100 CALL on USD/JPY but open a SHORT position on my forex platform. Wondering if their is a mathmatical way to ensure profit doing this? With the forex position , we get leverage so if we opened 1 lot with 500-1 leverage we would need a margin of 200 and would be making about $10 a pip. Which many times a release can move 40-50 pips either way.

    So would have to go down 10 pips to match the $100 CALL we lost. But chances are it would make 40-50 pips. If price starts going up we win CALL we close the forex position losing 3-5 PIPS and maybe even open multiple 60 sec CALLS at max amount, and ride the wave.

    Sounds like it may work Math wise. Maybe you guys can elaborate on this for me. Is there a way to make this strategy work mixing B.O w/ forex positions. I feel like I'm on to something here but I may just have gas

  2. #2
    Master Member Bogdan G's Avatar
    Interesting idea mate. I toyed with it a while back but I was fine tuning it for vanilla options and 0-100 style binaries.

    The problem is that you cannot close an FX trade with 3-5 pips loss at news time. And even if you could, there's nothing telling you that price won't return in the original direction after that 3-5 pips move. In fact, 10-20 pips up then 10-20 pips down is a more realistic scenario. Without speaking of the 60 down - 100 up days which lately occur more and more often.

  3. #3
    Master Member SeasaltMcFish's Avatar
    Yep, interesting...

    For instance:
    You could think about only covering a part of your BO trade with a smaller lot size. Let's say you can win $80 with your BO trade and hit 50% of your trades. So you win 80 or lose 100.

    By covering $50 with a same time Forex trade, maybe you can work something out. I just got this idea, but didn't calculate anything or tested anything. It's just to get you on an idea.

  4. #4
    Senior Member grindtime's Avatar
    Even if we used it to minimize our losses down to 50% or something...

    I will work on this and update ya'll. Am dubbing it the "Cross-Hedging GrindTime" Strategy. lol

  5. #5
    Active Member supertrader's Avatar
    Thanks for sharing mate!

    It is an idea I already have in mind, but it is difficult to calculate exactly the size of both BO contract and spot forex position. It will work really as a hedge but not full hedge as hedging in general is not about avoiding losses at all, but minimizing them as much as possible. In this case the BO will be a buffer to cover partially costs if the trade goes against you and hit a SL something about 15-20 pips away. Bogdan is right that 10 pips stop is to close and it will be hit in most cases due to widening of the spread. Also you have to be able to close quickly your forex position at the right moment in order to lock your profits. I think this idea needs more refinement but it can work for example on NFP days. Very few news announcements are tradable this way.

  6. #6
    Senior Member grindtime's Avatar
    Or I could open a forex position both ways 5 min before a news release. Open 1 lot LONG , 1 lot SHORT and than place a CALL or PUT option ( In direction I feel it will go depending on forecast ) .... Than once market starts to make a "good" move in a certain direction , close opposite forex position out , let the other ride and hopefully the option is winning ( which should atleast 50% of the time ) also we can begin making 60 sec options in the same direction. We would atleast get 2 or 3 in there.

    I think this may work. As long as the Forex broker allows hedging and spreads were low with very low commission or no commission.

  7. #7
    Legendry Member willyw's Avatar
    Quote Originally Posted by grindtime View Post
    Or I could open a forex position both ways 5 min before a news release. Open 1 lot LONG , 1 lot SHORT and than place a CALL or PUT option ( In direction I feel it will go depending on forecast ) .... Than once market starts to make a "good" move in a certain direction , close opposite forex position out , let the other ride and hopefully the option is winning ( which should atleast 50% of the time ) also we can begin making 60 sec options in the same direction. We would atleast get 2 or 3 in there.

    I think this may work. As long as the Forex broker allows hedging and spreads were low with very low commission or no commission.
    Hi grindtime, this method is workable. This called "locking" in forex, not hedging. Heding is a long and a short position of 2 different ccy pair while a long and short of the same ccy pair is called locking.
    Once market moves in a certain direction; close out the opposite position and if your broker spread is low and dont charge you commission you can easily cover the cost of your spread. Alterantively, once direction is certain you can add on another position.
    On my side for forex there is no commission charge and the spread is 0.5 pip, 1 or 2 pips (trader can choose either 0.5pip, 1 pip or 2 pip spread) and you can get a rebate from the spread thus lowering your cost.
    Last edited by willyw; 08-06-2014 at 04:36 AM.

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