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Chapter 22, Part II. Crosses – Continuation of Discussion... Page 5

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 22, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Commander in Pips: All right, let’s describe the process of creating synthetic pair on your example:

    Suppose we need Long “Y/Z” pair, but we have “X/Y” and “X/Z”, what we can do?



    Pipruit: ???​


    Commander in Pips: Well, that’s simple – we need Sell X/Y and Buy X/Z. Other words, we Sell X and buy Y and then Buy X and sell Z.

    Pipruit: Commander, please stop…​


    Commander in Pips: Ok, let’s start from the end. Think about synthetic pair first – you need Long position in DKK/SGD, so what does it mean?

    Pipruit: It means that I want to buy DKK for SGD – to have Long position in DKK and short in SGD.​


    Commander in Pips: Right. To have long in DKK what you have to do with USD/DKK?

    Pipruit: Sell it – sell USD and buy DKK.


    Commander in Pips: Ok, and to have short in SGD, what you have to do with USD/SGD?

    Pipruit: Buy it – buy USD and sell SGD. Hey! It works…​



    [​IMG]

    Commander in Pips: See? Nothing difficult is needed to create a synthetic pair. Still there is another question that appears – position size adoption.

    Pipruit: What do you mean?​


    Commander in Pips: When you trade USD/DKK, you trade it in terms of USD lots, so it will be 100,000 USD, that you will sell for DKK. But if the rate is 5.2811 you will get 5.2811* 100,000 = 528,110 DKK.

    When you will buy USD/SGD, you will get SGD at 1.2083 rate or 120,830 SGD. The question is – how much DKK do you want to have.

    IF you don’t care and equivalent of 100,000 USD is acceptable – no problem, just make it with 1.0 common lot. But what if you want, say 1.0 lot particularly DKK or 100,000 DKK. In this case you need to take just 0.2 lot in first trade – then you will get 105,622 DKK. That is close to single lot.

    Pipruit: Cool! That’s important.​
     
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