confused about hedging + leverage

[redstar87]

Hi, I may get laughed at for posting this, but I had a question about hedging with high leverage, also I'm a noob so please bear with me

Lets say you open 2 accounts with different brokers, and take offsetting positions in a currency pair.

Let's say for example you've got 10,000 in each account and buy and sell 1mill of each.

So obviously you're losing the spread right away, and pip value is $100 from what I understand.

It's not uncommon for currency pairs to change by hundreds of pips in a given day, would this strategy not be profitable a high percentage of the time? This is assuming you are actively watching the positions and there is no large pullback in prices.

From what I understand the max downside is only the 10,000 you deposit, and then the position gets closed down, so assuming the price moves > 100 + spread pips, you make a profit?

I'm sure if this was a consistent way to make significant profits everyone would be doing this, so I'd just like to know what I'm missing.

I apologize if this was asked before.

 

[arabianights]

think of it this way

you are only making profit once it has passed through the 100 pip mark.

you will make profit iff it passess through the 100 pip mark and stays there. if it goes back you will lose money.

So what is the difference between that and waiting for it to move 100 pips and just going long or short? You will find there is no difference at all. And then think... what is the difference between waiting 100 pips, and just going long or short now?

 

[redstar87]

My thinking was that this way you're not really taking a view on the direction but just betting on volatility to make money.

 

[arabianights]

But you're not betting on volatility, you're betting, at best, on kurtosis...

If you want to try your approach, just place a stop order 100 pips away to enter a trade... at least this way it will only cost you half the transaction costs. But it still won't work

Do you see why what I've said is equivalent, or in fact entirely dominant to, your strategy? If not we might have to go over that again, but it is important I think...

 

[redstar87]

Yeah, I see it now. Thanks for clearing it up

 

[ParThe9]

Anybody Can Hedge If...

Yeah, I see it now. Thanks for clearing it up

You can rub your stomach and pat your head at the same time.

 

[rathcoole_exile]

Lets say you open 2 accounts with different brokers, and take offsetting positions in a currency pair.

ah how refreshing !

a unique, newbie approach to the Holy Grail

how original !

congratulations on unlocking the door to untold riches