Immunization open position


Take traders operating in the spot market, USD / JPY and the futures market for the yen. His deposit of $ 100 thousand in this case, he can $ 20 thousand yen to trade futures and approximately $ 66 thousand on the spot market USD / JPY. The remaining amount, $ 14 thousand is more than enough for the role of "safety cushion". Suppose, USD / JPYspot = 130. Trader buys 20 futures contracts on the Japanese yen and buying the U.S. dollar against the Japanese yen in cash (on the spot) of $ 2 million - according to the formula (1). A more accurate value is $ 1.923 million, but it is uneven lot, and they are harder to sell. The total amount of money involved in this case is 20 x $ 12.5 million / (130 x 100) + $ 2 = $ 85,898 mln./30.

Since the trader deposit is $ 100 thousand, it does not receive from the broker to make a demand additional collateral (margin call) to support these positions. Since the price of the currency market is constantly changing, the trader for a more complete immunization should always adjust the amount of open positions in the spot market, according to the formula (1). Testing of this method of trading conducted on the market yen from late October 2001 on deposit $ 100,000.

Example of trading

The figure shows the daily charts USD / JPY spot FOREX market and the March futures on the Japanese yen on 29/10/01, the As the dynamics of the yen in the market is very strong position of the bears. Last month futures yen actively moving down every week with a great opening gap (80-100 points).

Mechanical trading system [2], most of the past month, red painted bars - a signal to sell. Currently, formed the third wave of Elliott, but its purpose - 7600 - the market has not worked, so algorithm Elliott Wave is not yet set targets 4th corrective wave. MACD oscillator shows strong bearish. Against the background of its signals down to predict corrective movement to the 4th wave - prematurely.

Sstoch is in a zone of extreme oversold, emerging in the last bar is trying to leave. Practice has shown [2] that the stochastics will need more time to enter the zone, demonstrating the moderate oversold, and only then can a corrective move higher. Spot market USD / JPY is behaving contrary to the dynamics of the futures yen. This is understandable, since in this case the yen is in the denominator quote USD / JPY. At the material time is forming a bullish wave 5 in order to Elliott 129-134 yen per $ 1.

Mechanical trading system often creates green bars - buy signals. Oscillator MACD is in the positive area of its values and demonstrates the strong potential of bulls. Stochastic is either in extreme overbought area, or near it, also supporting the bullish market sentiment. However, on the last bar we see his attempt once again to leave the overbought zone, thus steam from the overheated market.

In this situation, putting an order to sell 20 futures contracts on the yen at the rate of 0.008270, and the purpose of partial immunization of a short position in futures after the execution of the order to sell $ 1.5 million USD / JPY 122.50 at the market rate. Since our position in the spot market was open against the trend, we're on the lookout for this market segment readily commit offset deal at the first indications for the continuation of the trend up.