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

Krzysztof Piasecki and Michał Dominik Stasiak
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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

Mathematics, 2019, vol. 7, issue 7, 1-23

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.

Keywords: speculative trading system; prediction table; financial effectiveness (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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