Is my thinking correct?

[Rossini]

Hi,



If I were to get a sell signal on the Aud Nzd, instead of shorting this pair could I short Aud Usd and buy Nzd Usd simultaneously? This would mean I had no exposure to the Usd, and would be net short Aud and net long Nzd? This assumes that I am trading the same amount on both relative to their current price?



My question is, would the outcome be the same if I traded the 2 currencies pairs rather than just trading the Aud Nzd? Lets say that (ignoring spreads) I could have 20 pips shorting the Aud Nzd from my signal. Would I make the equivalent amount spreading the 2 pairs?



Iv never thought about this before and would be interested in your views!



Thanks

 

[Rossini]

Helpfull, thanks...

 

[Lee Shepherd]

Hi mate,

Dont worry you haven't discovered anything no one else has ever thought of nor have you come across some 'secret' trading gap in the market.

I'm not quite sure what you're attempting to do but with currencies you are always trading one off against another so not sure what you're trying to achieve. Your message needs clearing up somewhat for me, unless of course someone else on here can make sense of it.

 

[Rhody Trader]

If I where to get a sell signal on the Aud Nzd, instead of shorting this pair could I-

Short Aud Usd and buy Nzd Usd simultaneously?

A short on AUD/NZD is indeed the same as going short AUD/USD and long NZD/USD, assuming the sizes are correct. That means you would expect to see the gross P&Ls match.

That said, you will be on the wrong side of two spreads instead of just one, and it's very likely that the net interest carry for the combo position would be less favorable than for the single position.

 

[Rossini]

Thanks Lee, I'm not the best at the whole grammar and punctuation thing... but I can't see anything wrong with what I wrote?

No I realise that its nothing new but it does appeal to me because if I could get the same outcome trading the 2 pairs then it would more than halve my spread cost!

 

[Rossini]

A short on AUD/NZD is indeed the same as going short AUD/USD and long NZD/USD, assuming the sizes are correct. That means you would expect to see the gross P&Ls match.

That said, you will be on the wrong side of two spreads instead of just one, and it's very likely that the next interest carry for the combo position would be less favorable than for the single position.

I was thinking of day trading using this, you say that the gross P&L's would match but if the Aud has weakened relative to the Nzd since I got in, should I not show a larger profit on the winning trade (short Aud) than the loss on the loosing trade (long Nzd)?

 

[Skill Leverage]

People do this all the time when they want to trade synthetic pairs; say your broker doesn't offer EUR/CAD, but you want to trade this pair, you simultaneously go long EUR/USD and short CAD/USD for equal positions.

 

[Skill Leverage]

As Lee says though, in practice you'd be much better off trading one pair than two if your broker will allow you.

 

[Rossini]

Thanks the point, im with a market maker at the mo, but its not going to last and the spread for Aud Nzd is 25 in uk trading hrs! If I spread I can do the 'same' trade for about 6pips.

 

[Skill Leverage]

Yeah another reason to do it would be if you are trading a currency pair that has very low volume without direct access sometimes it will be cheaper to pay two small spreads than one large one.

 

[Rhody Trader]

I was thinking of day trading using this, you say that the gross P&L's would match but if the Aud has weakened relative to the Nzd since I got in, should I not show a larger profit on the winning trade (short Aud) than the loss on the loosing trade (long Nzd)?

The gross P&Ls of the combined position should match that of the single pair position - assuming equivalent entry levels.

 

[Rossini]

Thanks for that Guys.

 

[Rossini]

Can anyone who uses trade station tell me if it is possible to set up the platform so it will simultaneously buy one pair and sell the other pair at one click? Or if anyone uses any other brokers that has this facility I would like to know. I don't know if this is even possible but I would have thought so.

 

[Lee Shepherd]

Rossini,

I think the advice you have been given on here is brilliant, one thing that springs to mind and what I've always heard being bounced around is keep it simple. In other words, dont try and re-invent the wheel. Stick to a simple plan and work from there. This whole idea seems unecessarily complicated let alone costly and more risk if not implemented correctly. There are easier less costly ways to trade this pair. Go back to basics.

 

[Lee Shepherd]

Hi Rossini,

Thanks for the private message you sent me. I dont generally reply to PM's as its unfair to all the others that wouldn't have the benefit of seeing it and would obviously be deemed as one to one help which I try and refrain from doing. The reason's being that the information you recieve would be biased from my own perspective and unfair on me should any of the information given be mistreated or worse still come back and bite me on the ass should you blow your account.

I would be happy to try and answer any of your questions, equally along with many others on here but please post in the public forum for all to benefit from.

Thanks.

 

[Rossini]

Thats fair Lee, thanks