futures

Before wel tell you all about futures, let's just continue what we were talking about:
Advanced Forex Strategies Part 3 - Three Point Arbitrage (tpa)

Three Point Arbitrage is based on the concept of "Relative Arbitrage" and was designed to exploit price disparities among three currency pairs. It is one of the Forex Hedge Fund Strategies used to capitalize on the triangular relationship between two hard currency pairs and their respective cross rates. This triangular relationship provides an effective source for arbitrage opportunities due to the fact that the cross rate of two currencies do not always coincide with what the actual cross rate should be based on the rate of the two dollar pairs in consideration. For example, suppose we observe the following exchange rates for USDJPY, EURJPY, and EURUSD:

USDJPY	-- Barclay quoted 106.05/08 


EURUSD	-- HSBC quoted 1.2900/03 


EURJPY	-- UBS quoted 136.70/73


We have set out to find a market inconsistency between EURJPY, EURUSD and USDJPY. The significance of the EURUSD pair is to obtain a rate to correlate with the EURJPY to then calculate the implicit sell position of JPY. Looking at the rates shown, the EURJPY is 136.73, EURUSD is 1.2900, and USDJPY is 106.05. Using the EURJPY and EURUSD rates, a selling yen rate is calculated to be 105.99 (EURJPY divided by EURUSD yields USDJPY). The calculated USDJPY can then be compared to the initial USDJPY rate 106.05. We recognize an existing profitable hedge and have the opportunity to lock in 6 pips. Although this might seem like an arduous task, many funds as well as foreign exchange publications validate this to be a proven and profitable method.
TPA Forex Hedge Fund Strategies in more detail:
  • If the exchange rate (Currency1 'C1' per Currency2 'C2') is less than the implied cross-rate (C1 indirect quote)/(C2 indirect quote), then buy C1 with dollars, trade C1 for C2, and trade C2 for dollars.
  • If the exchange rate (C1 per C2) is above the implied cross rate (C1 indirect quote)/ (C2 indirect quote), then buy C2 with dollars, trade C2 for C1, and trade C1 for dollars.

In the above example the implied EURJPY is 136.80/83 (USDJPY x EURUSD = EURJPY) and UBS has posted a quote EURJPY of 136.70/73 so there is an arbitrage opportunity!

Step One:	Convert $1,000,000 USD into ¥106,050,000 YEN ($/¥ = 106.05)


Step Two:	Convert ¥106,050,000 YEN into €775,616.20 EURO (€/¥ = 136.73)


Step Three:	Convert €775,616.20 EURO back to $1,000,544.80 USD (€/$ = 1.2900)


Profit per round trip = $544.80

Now let's dive right in the world of futures, this article by Ryan will make it so easy for you. He is brilliant and i can't have enough of reading what he has to say.
Futures trading is the practice of trading commodities. You may have heard stories about people getting rich with futures trading, but as with all types of investments, there is a risk involved. If you do it incorrectly you can end up thousands of dollars poorer, however done correctly, futures trading can be very lucrative and you could find yourself a few thousand dollars richer. There are many factors involved with becoming successful at futures trading. On the one hand, you may feel as if you want to make your money rather quickly; but the reality is that if you want to make money quickly you need to do some high risk futures trading, and you stand to lose a lot of money that way. So, if you want to truly make money with this kind of trading, you need to have some patience.

What is Futures Trading?

Futures trading is actually commodities trading - it is the practice of trading commodities to turn a profit, and it takes experience to truly become successful at this type of investing. So exactly what is a commodity? Simply put, a commodity is something such as a crop or a metal that is a tangible object that comes from the Earth. Examples of commodities are farming crops, silver, gold, and oil; so when engaging in futures trading, you are trading these tangible items.

Look to the Future

It is called "futures trading" because a key component of this kind of investing relies on your ability to look to the future and predict future prices. For example, a few years ago we received information that gold prices were at a record breaking low. Recently, a few years later, gold prices spiked to an all time high. Those who successfully projected the future and purchased gold at that low price would have waited to sell it when the price was at an all time high to make a profit.

Applications of Futures Trading

Futures trading encompasses more than just gold and other metals, and investments are made by individuals and companies alike. If a company were to make a futures trade, they would do so in a manner that complemented their personal interests, as is the case with product manufacturers who rely on certain crops.

Futures Trading Considerations

So, you've decided to do some futures trading - well, a wise first step would be to make financial goals, research, and/or hire a professional broker to help you. On the one hand, hiring a professional can be expensive; but on the other, it may prevent you from making novice mistakes. Either way, futures trading can either be remarkably successful or an utter failure. If you research, make smart decisions, and look to the future, your futures trading endeavors will be successful.

For more information visit at http://www.tradefxplus.com and get free EUR/USD Forex trading signals, trading recommendations and email alerts. TradeFXplus Forex signals service gives the novice or professional currency trader the tools to trade currencies profitably.

Article Source: http://EzineArticles.com/?expert=Ryan_Lee