Forex system

Improving FX Carry Strategy with Exotic Currencies and the Frontier Markets

31.January 2024

Forex markets lure retail traders into a game of “hunting pips” with high leverage and high turnover scalping strategies, in which small traders often lose more than they can afford. But there are other ways of trading currencies. The smart money knows how to exploit interest rate spreads that this asset class offers by employing the FX Carry Trade strategy. In the past decade, the low interest rates of the most developed countries made the FX Carry strategy less profitable, but as inflation returned, higher interest rates returned in some countries, too, and with them, the interest rate spreads widened. And FX Carry is back, and the question stands: Can we improve this well-known trading style?

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100-Years of the United States Dollar Factor

16.August 2022

Finding high-quality data with a long history can be challenging. We have already examined How To Extend Historical Daily Bond Data To 100 years, How To Extend Daily Commodities Data To 100 years, and How To Build a Multi-Asset Trend-Following Strategy With a 100-year Daily History. Following the theme of our previous articles, we decided to extend historical data of a new factor, the Dollar Factor. This article explains how to combine multiple data sources to create a 100-year daily data history for the Dollar Factor (the value of the United States Dollar relative to its most important trading partners’ currencies), introduces data sources, and explains the methodology.

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The Price of Transaction Costs

22.April 2022

Capturing the systematic premia is the main aim of many quantitative traders. However, investors tend to overlook an important factor when backtesting. Trading costs are an essential part of every trade, and yet even when we consider them, we only use an approximation. The recent article from Angana Jacob (SigTech) looks into how heavily trading costs affect the overall return of various strategies and analyzes multiple ways of implementing trading costs into the trading rules themselves.

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What’s the Relation Between Grid Trading and Delta Hedging?

23.February 2022

Delta hedging is a trading strategy that aims to reduce the directional risk of short option strategy and reach a so-called delta-neutral position. It does so by buying or selling small increments of the underlying asset. Similarly, grid trading is a trading strategy that buys/sells an asset depending on its price moves. When the price falls, it buys and sells when the price rises a certain amount above the buying price. This article examines the similarities between delta hedging and grid trading. Additionally, it analyzes numerous versions of grid trading strategies and compares their advantages and disadvantages.

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A Primer on Grid Trading Strategy

27.December 2021

Grid trading is an automated currency trading strategy where an investor creates a so-called “price grid”. The basic idea of the strategy is to repeatedly buy at the pre-specified price and then wait for the price to rise above that level and then sell the position (and vice versa with shorting and covering). We will explore the basics and show favorable and unfavorable scenarios in the first article about this trading style. Later articles will dig deeper and investigate how Grid trading is related to other systematic trading strategies.

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Three Simple Tactical FX Hedging Strategies

8.October 2021

There are many ways one can lose money when investing, and exchange rates are one of the potential risk factors. Luckily, there are several ways to minimize this type of loss in your portfolio. Systematic FX hedging that uses currency factor strategies is a way of protecting an existing or anticipated position from an unwanted move in an exchange rate. It does not eliminate the risk of loss completely but helps to manage currency exposure better.

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    The Encyclopedia of Quantitative Trading Strategies

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