20% GUARANTEED Profit (Forex): *lol* Now that I got your attention, Yes, Im feeling better now, Thank you. My depression is passing away (till it comes back ~1.5 months later). ***DISCLAIMER: Before I proceed any further, I want to point out that forex isnt all great and free money. I myself got slammed by a pretty bad loss recently with the fierce movement in the EUR, USD and GBP market :( *** Now, to the topic; I was chatting with someone about investment who is very passionate about his investment-class (its Gold btw). I, on the other-hand dont think gold price is going up soon (difference in opinion). But, the point is, I think he is confused between trading & investment (well, most people are confused between that anyway). After about 30min trying to explain to him, I kinda gave up as he was getting visibly upset :( Anyway, he started to challenge me to tell him if there is any other guaranteed returns in other vehicles apart from banks. Even properties have risks.. I decided to call it a day and walked away. While in Genting Highlands, it occurred to me that Ive ALREADY came up with a GUARANTEED return scheme some time ago with forex. WHAT?? GUARANTEED? IMPOSSIBLE! In banking, Capital Guaranteed investments usually gives you a 5%/yr return BUT you need to lock your funds in for like 8~10yrs. In properties, you probably get like 10~20% a year, but again, you need to lock your funds for 3 years (ok, arguable), and you need substantial amount to start; not to mention that properties investment comes with its own set of risks. But how about forex? Is it possible to device some sort of GUARANTEED RETURNS strategy with forex? I myself have forgot about this strategy, so I thought Ill re-write it again, even if it is just to refresh my own memory. Before I go on, most forex traders are TRAINED to trade. They predict a direction and take position on that direction. Bankers and mathematicians on the other hand, look at it from a different angle. Thats why bankers tend to do hedging and arbitraging. Which most retail traders dont. So, if it is do-able, then why arent these techniques taught to traders? Coz there is no reason to. I dont gain anything from tell you... unless you give me your money and/or I run a fund house ... But Im just a small fry in the industry ... so ... Anyway, Im being stupid again today and Im writing it out here for you. ---------------- The title should be CROSS-ACCOUNT-HEDGED, SWAP-ARBITRAGING. Now, I need you to know that this technique is NOT allowed by brokers. Any form of arbitrage is prohibited (lol, duh!). Arbitrage basically means GUARANTEED profit from market inefficiencies. Back in the old days when I was in the bank, the traders do a lot of of arbs. Not sure about now. So, if you choose to do this, you have to stay under the radar (ie, dont go around yelling how happy you are!). The broker will kick you out if they found out. WHAT IS SWAP? In simple terms, swap = interests. In retail forex; when a trader open a trade and leave it open overnight, you are charged/paid swap for that order. Under ALL scenario, the swap-charged is ALWAYS higher than the swap-paid to you. Thus, if you hedge your trade (ie, buy 1 lot, sell 1 lot), you will ALWAYS loose swap daily. WHAT IS HEDGE? Hedging is a method to contra your position. If I buy 1 lot EURUSD, and sell 1 lot EURUSD; the net-effect will be ZERO. No matter how high the price go, or how low the price drop; it will not make any difference to you. Usually, retail traders will say it is stupid to hedge your trades. BUT, they fail to realize that HEDGE FUNDS make money from hedging (duh, hedge funds!). Problem to profit from hedging will require one to thinking out of the box. SWAP FREE ACCOUNTS When we open a retail forex account with a broker, it is, by default a SWAP account. Meaning there will be swap element involved. However, many brokers have something called SWAP FREE accounts. Swap free accounts are required in the middle-east (or Muslim) countries where interest-bearing accounts are prohibited. So, MOST retail traders are unaware that they can request for a SWAP FREE trading account. THE STRATEGY This is how it works (refer to the hand-drawn picture). You open 2 forex trading account with the same broker, BUT under 2 different person names (ie, you and your spouse). Person A, write in to broker to request for SWAP FREE account. Person B, leave it as a normal SWAP account. Meaning, all trades placed by Person A, will NOT have swap element. Either charged or payable to Person A. While trades placed by Person B, on the other hand, will incur swap fee, either charged or payable. Now, refer to the screen-capture picture (Pic2). I have done all the calculations and wont go through the math involved; but these are some examples. If you look at USDTRY (US Dollar vs Turkish Lira), you will see that; if Person-B place a BUY trade on USDTRY, you will have to pay US$43.40 worth of swap everyday, and if Person-B place a SELL trade on USDTRY, you will receive US$8.40 swap (interest) everyday. So, if you hedge your order (1lot Buy, 1lot Sell), you will LOOSE US$35 a day on swap fee. WHAT HAPPENS? Now, lets have Person-A (swap FREE account) open a BUY trade; and then have Person-B (swap account) open a SELL trade. Now, we get a Cross-Account-Hedged, Swap-Arbitraged scenario! Profit Loss: If USDTRY goes up; Person-A will profit, but Person-B will loose. If USDTRY goes down; Person-A will loose but Person-B will profit. Net effect is that you have a ZERO exposure, since both accounts are yours (left-pocket, right-pocket; get it?) But, remember our example, if you place a BUY + SELL; we will always loose on swap. However, since Person-A have a SWAP FREE trading account; the swap fee that he is supposed to pay (US$43.40) is waived. While, the positive swap receivable by Person-B (Swap account) is still there! When one of the account is almost zero-rized due to losses, the other-account is making a lot of profit. So, you just transfer the money from the profiting account to the loosing account to re-balance your accounts. NET-EFFECT The net effect you get is a hedged left-pocket, right-pocket profit/loss where you dont profit/loose anything from market movement. BUT you will receive POSITIVE SWAP fee of US$8.40 a day with ZERO exposure. In this sense, the swap income is a GUARANTEED income. MORE MATH & DETAILS The key to this guaranteed strategy is to PREVENT your loosing account from BLOWING (margin call), which will wipe out everything (in case you use leverage). To do that, we have to be mindful of the AVERAGE MONTHLY trading range of the currency-pair. For USDTRY, it has an 18-month-highest-movement-range of 2,458pips; and a monthly average of 986pips trading range. Assuming we start with a US$10k capital in Person-A and US$10k capital in Person-B (total of US$20k), we need to make sure that the US$10k will not blow within a month. From my calculation, Person-A and Person-B should open a 1.75 lot trade. With that lot-size; the US$10k will be able to last 1 month of AVERAGE montlhy movement. This is to avoid too many capital re-balancing act as it incur costs by the banks to transfer money. With a 1.75 lot trade size; the NET Swap profit for a month will be US$369 (base on CURRENT market condition). Deduct US$20 for banking fees; it will be US$350 a month; or US$4,200 a year. ***************** In other words, a WHOOPING 21% GUARANTEED return a YEAR --monthly compounding. And for those of you who love compounding effect; this will turn US$20,000 to US$42mil in 120 months (10-years). ***************** But obviously, the above is a theoretical limit and is lower in real-life. Also, market condition changes and the swap fee changes too. So, you will need to recalculate and/or switch instrument/broker. Also, maybe you dont like Turkish Lira. You could look at something more stable like GBPNZD (~12% a year GUARANTEED). I think USDRUB has potential too. You need to run the calculation over all the currency pairs. IMPORTANT You need to make sure: - Your account NEVER blows (do your math!!) - To open/close your trades at the time of LOWEST spread. - Need to factor in Spread + Comms fee (my calculation already done that). - PipValue is a VERY important aspect of the calculation. - Make sure you are not found out by the broker!!! Do it under the radar! ============================ Now, so are you excited? Before you jump up and down and start mailing me to do it for you; You need to know that I am NOT a fund-manager. I am not licensed. Heck, I dont even have a diploma in computer programming. So, it is illegal for me to take your money and do it for you. I will go to jail if someone finds out. So, I can only share with you what I know. Well, unless you hire me :) *lol* Furthermore, with JUST (*heh*) 21% a year, I cant make much money from any professional fees unless you hand me > a million of $$. As for me, I am not using this method because I am a forex trader. I target ~10% a month ROI (120% a year). But that incur substantial risks. But IF I am a fund-manager, I will look at things from a different perspective. So, if someone wants to take the lead to start something, do contact me. Im available :D I just dont want to be a leader. I prefer to focus on thinking instead of the business. Happy trading... and if you decides to make use of this strategy and you make money from it: ***** PLEASE CONTRIBUTE 10% of your PROFIT to CHARITIES of your choice. Give back to the world! Pay it forward. ***** P/S: For all the gold-gurus, property-gurus, mutual-fund gurus; I am not criticizing your industry. Im merely pointing out the needs for us to: look beyond what we know. If we believe we already know everything, we will never learn. Yes, I know some of you will say, Wah.. how come youre not a multi-billionaire yet?? Well, there are Thinkers and there are Do-ers. I guess Im stupid in that sense. Hey, we cant be perfect right?
Posted on: Tue, 23 Sep 2014 04:24:04 +0000
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