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The Forex Trading System for Speculation with Constant Magnitude of Unit Return

Author

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  • Krzysztof Piasecki

    (Department of Investment and Real Estate, Poznan University of Economics and Business, al. Niepodleglosci 10, 61-875 Poznań, Poland)

  • Michał Dominik Stasiak

    (Department of Investment and Real Estate, Poznan University of Economics and Business, al. Niepodleglosci 10, 61-875 Poznań, Poland)

Abstract

The main purpose of this article is to investigate a speculative trading system with a constant magnitude of return rate. We consider speculative operations related to the exchange rate given as the quotient of the base exchange medium by the quoted currency. An exchange medium is understood as any currency or any precious metal. The unit return is defined as the return expressed in the quoted currency by the amount of base exchange medium. All possible states of the exchange market form a finite elemental space. All knowledge about the dynamics of this market is presented as a prediction table describing the conditional probability distributions of incoming exchange rate changes. On the other hand, in the proposed trading system each speculative operation is concluded in such a way that the gross payment is determined by the given magnitude of unit return. The paper contains an analysis of the following evaluation criteria: annual number of transaction, success probability, expected unit payment, expected unit profit, risk index, unit risk premium, return rate, interest rate, and interest risk premium. Both of these indices can be used to select the effective trading systems. Effectiveness is considered in the local sense and in the global sense.

Suggested Citation

  • Krzysztof Piasecki & Michał Dominik Stasiak, 2019. "The Forex Trading System for Speculation with Constant Magnitude of Unit Return," Mathematics, MDPI, vol. 7(7), pages 1-23, July.
    • Handle: RePEc:gam:jmathe:v:7:y:2019:i:7:p:623-:d:248031
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    References listed on IDEAS

    as
    1. Michał Dominik Stasiak, 2018. "Modelling of Currency Exchange Rates Using a Binary-Temporal Representation," Springer Proceedings in Business and Economics, in: Taufiq Choudhry & Jacek Mizerka (ed.), Contemporary Trends in Accounting, Finance and Financial Institutions, pages 97-110, Springer.
    2. M. A. H. dempster & C. M. Jones, 2001. "A real-time adaptive trading system using genetic programming," Quantitative Finance, Taylor & Francis Journals, vol. 1(4), pages 397-413.
    3. Michał Dominik Stasiak, 2018. "A study on the influence of the discretisation unit on the effectiveness of modelling currency exchange rates using the binary-temporal representation," Operations Research and Decisions, Wroclaw University of Science and Technology, Faculty of Management, vol. 28(2), pages 57-70.
    4. Mark Austin & Graham Bates & Michael Dempster & Vasco Leemans & Stacy Williams, 2004. "Adaptive systems for foreign exchange trading," Quantitative Finance, Taylor & Francis Journals, vol. 4(4), pages 37-45.
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    Cited by:

    1. Krzysztof Piasecki & Michał Dominik Stasiak, 2020. "Optimization Parameters of Trading System with Constant Modulus of Unit Return," Mathematics, MDPI, vol. 8(8), pages 1-17, August.

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