FX Algo Trader Statistical Arbitrage Software Overview (www.fxalgotrader.com)

[afalde]

I posted a 1 hr webinar on using statistics in options trading specific example in use of weekly butterfly.  back tested results of 35% per year.

[JCB7890]

If you buy eur/usd and sell gbp/usd, then your position is simply long eur/gbp. Volatility in eur/gbp can sometimes exceed that of gbp/usd ... how is taking an outright position in eur/gbp somehow less risky than taking an outright position in gbp/usd?

[FXAlgoTrader]

@JCB7890 It's less risky because you're effective leverage is reduced. If your 1 lot long EURUSD and 1 lot short GBPUSD your effective aggregated position is roughly 0.5 lots long EURGBP.

[FXAlgoTrader]

Hi, the current arbitrage engine exits under the following conditions:-

1) If overall arb position is profitable and spread mean reversion is complete ie spread has recoupled with it's 20 day MA.

2) Position has reached maximum allowable loss described as a % of equity

You could extend your profits by letting the spread move further over the spread MA - it's called 'resonance' - typically the spread will oscillate around the mean once it returns thereby allowing you to push more profit

[clearsunnysky]

Hi there, I'm trying stat arb with a manual calculation on excell currently and wanted to know when you typically exit your trades - if you get in at -2 e.g. would you exit at the mean or continue until SD hits +1 or +2?

[FXAlgoTrader]

@clearsunnysky Depends on the strength of the trend in the synthetic pair (created by the arb) if the spread is moving up strongly and you entered at -2 why not ride it out to +2. If the spread is stationary it's probably better to exit at the mean. There is a scenario called stochastic resonance where the spread will oscillate around the mean in a tight band when reversion takes place. So on that basis exit at mean reversion makes sense on a general basis.