How to pasture your money and grow it healthily 〜No trading・Triple Arb〜

How to Let Your Money Graze and Grow It Healthily

〜For those who find trading exhausting〜

FX Arbitrage Chapter: Introduction

Nice to meet you!!! I'm Potetomato!

This e-book is intended to help people who are tired of trading grow their money by letting it graze peacefully.

Also, it is for those who want to increase their money but are afraid of trading.

Pasturing money means telling your precious funds to grow big in the vast plains of the market, and releasing them.

Let's do that.

And when you feel it's time to return, you bring the money back home with everyone.

However, the vast meadow has cliffs, wolves, and you can get lost.

Therefore, fences to hold them in, to ward off wolves, and a "beacon" to prevent getting lost are necessary.

We protect them so they won't fall from cliffs, get eaten by wolves, or get lost and separated.

We want as much as possible for all the money to return safely from the meadow.

Here are some examples of the mindset and methods for money grazing.

＊The mindset is universal, but please forgive that the examples shown may not be usable forever.

Now, briefly, let me first convey the image of the grand pasture where money will graze.

・Fences and walls

For example, many Japanese people probably believe there is a strong wall at the USD/JPY rate of 100 yen.This wall is fairly solid and hardly ever breaks.

However, sometimes this wall is a lie.

The Swiss franc shock is a prime example.

And even a real wall can be knocked down by a single kick from a giant, so it's not absolute.

・Wolves

They're the bad guys who want to eat our precious money.

A common problem is stop hunting.

For example, just below the 100-yen wall, as a defense in case the wall is breached, there are many mechanisms that sacrifice something to prevent total wipeout (stop-loss settings).

The wolves are watching, waiting for a chance to break this wall.

And as soon as they see the wall is aging and could be breached, they launch a full assault, selling aggressively.

As a result, the wall collapses and a large number of stop-loss orders trigger. Stop-loss orders are sell orders, so the rate falls rapidly. The selling begets selling, and a cascade of sells occurs, and our money is eaten up in a short time.

And the wolves leave, saying they'll come again when they're full.

・Cliffs and holes

This meadow has many cliffs and holes.

You should avoid approaching what you can see, but the trouble is that there are many unseen things.

If you fall into unseen holes, costs occur. If you plunge into unseen cliffs, you are wiped out.

If you become desperate trying to avoid them, you'll be swallowed by fog and get lost. When lost, the money gradually decreases.

After trying to do something, you lose track of how to return, and before you know it, much money has fallen victim.

The biggest cliff I imagine is when you believe that holding high-yield currencies long-term with 1x leverage will never trigger a margin call, and then the following happens, leading to ruin.

1) A broker (trading company) goes bankrupt while you hold large unrealized losses

2) Forced liquidation due to trading halts while carrying large unrealized losses

Can you say with certainty that your broker will not go bankrupt within the next ten years?

Also, high-interest-rate countries outside Oceania are generally economically unstable.

They are high-yielding because they are unstable, but can you say for sure that those countries won't default within 10 years?

I could not accept this risk.

Never forget that long-term holdings have a cliff where a total loss is virtually certain.

In this way, looking at the whole meadow, it feels like a Demon World Village.

Yes... unfortunately, the untamed land we dreamed of and yearned for was just a Demon World Village after all.

Moreover, to move forward blindfolded into that Demon World Village is ordered, and 90% of traders are letting the money go wild.

And, to move forward blindfolded is ordered; 90% of traders are letting the money be released.

Well... sadly, there will be wipeouts.・A warm, cozy place

Is there a place in the Demon World Village where warm sunshine pours in, birds sing, and even wolves take a nap?

Even with holes, can there be a place where you think “haha, I tripped” and it’s okay?

Hmm... there seems to be such a place.

It seems to exist, but it looks easy to reach, and in fact it’s not that easy.

So, I’m taking up the pen to be a beacon to reach that place that looks easy but isn’t.

I’ve described the market in a fantastical way up to here, but what I want to tell you in this book is,

To treat an FX account like a savings account, and to earn roughly 30 to 70 times the bank's interest rate (0.2% annual) with almost no risk—that is the plan, along with the methodology and basics of risk management.

Now I'll present the above in the main text. Thank you in advance!!

Now, let's get to the main topic.

To obtain a warm money-grazing ground, we use arbitrage, one of the world's three great wealth-building methods.

・About arbitrage

First, a brief explanation of arbitrage. It is also called spread trading.

In short, it means that at different places, buying and selling the same thing at the same time somehow increases money.

Here's a concrete example.

For example, buy a 350ml beer at 180 yen at a nearby supermarket and immediately sell it inside the cinema for 500 yen.

That's arbitrage. It seems so obvious, right? lol

The key is 'immediately'. We'll do this in FX.

The image is the same as the beer example earlier.

Like this.

Company A sells swap points at 50 yen per day, so you buy them: -50 yen

Company B buys back the swap points you bought at 150 yen daily: +150 yen

They buy back at 150 yen.

Bought at 50 yen, sold at 150, so 100 yen profit.

＊If you apply, this can be done automatically every day. Strictly speaking, the mechanism is completely different, but understanding it this way makes it enjoyable (lol).

It's not rocket science! The mechanism is just business.

So what do we arbitrate with? This time we'll use the currency pair TRY/JPY (Turkish Lira/Yen) as the example.

＊The 'with what' part changes with time, so it's not absolute.

As of January 2017, arbitrage with this currency pair is not new at all.

If you search, there is plenty of information.

But that would defeat the purpose of writing, so the point of this book is to introduce techniques not widely available in the market.

That technique is called triple arbitrage.

They say that, but I named it that (laugh).

In standard arbitrage, TRY/JPY is hedged between different brokers.And thus, ensure no FX profit or loss occurs.

As a result, for example, if you long/short 100,000 TRY/JPY, you can earn about 200 yen per day in swap income.

There is actually a way to make it about 550 yen, and that is triple arbitrage! I'll introduce that.

・Before that, study for triple arbitrage

Before the concrete explanation, a quick math lesson.

＊If you understand currency synthesis, you may skip.

The currency pair AUDNZD is written as AUD/NZD. The "/" is actually a division bar.

Therefore, it becomes AUD ÷ NZD.

And, this is a bit forced, but you can write AUD/JPY ÷ NZD/JPY.

Because if you simplify AUD/JPY × JPY/NZD, you get AUD/NZD.

Let's summarize the above for readability.

AUD/NZD

=AUD÷NZD

=AUD/JPY÷NZD/JPY

=AUD/JPY×JPY/NZD

=AUD/NZD

*The JPY part can be anything, yo!

Next, FX study.

There are two types of trading for AUD/NZD.

Long and short.

To long AUD/NZD means you give up NZD on the right and obtain AUD.

This means selling NZD and buying AUD.

Also, shorting AUD/NZD means selling AUD on the left and buying NZD.

Now, again, some math.

Earlier we saw the formula; let's consider the long case.

Long AUD/NZD

=Buy AUD ÷ Sell NZD

=Buy AUD/JPY ÷ Sell NZD/JPY

=Buy AUD/JPY × JPY/NZD

=Buy AUD/NZD

Because you're giving up the left currency to obtain the right, it's basically a long AUD/NZD.

In this case

Buy AUD/JPY × JPY/NZD to sell

Buy AUD/JPY and Sell NZD/JPY

Can be rewritten as.

＊If multiplication is not possible, it becomes "and".

This means that

AUD/NZD Long

can be split into an AUD/JPY long and NZD/JPY short!!

With this, you can simulate a long AUD/NZD by combining AUD/JPY and NZD/JPY in brokers that don't offer AUD/NZD.

＊Sorry for the messy intermediate calculations.

It's OK just to know the result. Similarly, a short AUD/NZD can be decomposed into an AUD/JPY short and a NZD/JPY long.

This means that hedging AUD/NZD can usually be replicated as follows:

Alternatively, it can be reproduced with the following three positions:

・AUD/NZD Long

・AUD/JPY Short and NZD/JPY Long

Profiting in this state is called triple arbitrage.

・Simulation with TRYJPY

Now, finally, let's try triple arbitrage with TRY/JPY.

1) Usually it's like this.

2) Change the above to the following:

Yes! This looks OK at a glance!!! However, in this state pasture will actually be affected by currency movements.

In other words, it's not a true hedged position.

That is, it's not a true hedge because with triple arbitrage, the pseudo-hedged state cannot simply hold all currency pairs in a 1:1:1 ratio.

That's why.

But it's okay. Rest assured. This book exists to protect your money from such holes.

The free version ends here.

If you've enjoyed this far, we apologize.

The rest will be explained in the paid version.

Also, if you read my site "Potetomato Life," I think I can help you understand beyond the free version.

Accessing this site is free.

The paid version removes unnecessary parts of the site and adds clarifications to unclear parts.

And it comes with the "tools" introduced on the site.

＊There are differences between the tools shown on the site and the "tools" included with this book's paid version.

The site version is customized entirely for my personal use, but the paid version's included tools are designed to be more generally applicable, so please understand.

Note: The tools require Microsoft's Excel software.

Mac version also works, but Windows version is preferable.

There are no macro functions so that anyone can customize.

Also, there are no user-created functions, so it can be used with general Excel usage.

Therefore, please excuse the messy formulas.

※This text is a reproduction of the content from the free version "Money Grazing (Free Version)".

A somewhat unusual arbitrage and a tool to make you go "wow".

【Manual only】

A somewhat unusual FX arbitrage introduction

【Calculation tool for practical execution】
With this, you can do it easily