Percentage movement guide
The Netswap trade size calculation service allow you to get stopped out from a Netswap trade when the instrument traded makes a move around a percentage movement value of your choice.
For example, let’s say you choose a 3% value for a Netswap trade and after receiving the order size from us you open the trades when the price of the instrument is 15.45. You will then get stopped out in one of the two accounts when the instrument moves around the following prices:
15.45 + (15.45 * 0.03) = 15.9135
or
15.45 – (15.45 * 0.03) = 14.9865
How to pick the percentage movement value for a Netswap trade
The lower is the percentage value you choose, the higher the trade size and consequently the ROI will be, but the risk to not recover the execution costs will also increase as your trades will be closed earlier.
The higher is the percentage value you choose, the longer the trades will remain opened, but the order size and the ROI will be lower.
You should choose a percentage value which gives enough room to the net interest to overcome the spreads/commissions costs and at the same time allows you to achieve a reasonable return.
How to pick the percentage movement value with the help of volatility
During the selection process of the right percentage value, you will likely envision a given period at which you’d like the trades would be closed on. For example, if it takes three days for the net interest to cover the amount paid for spreads, you may want the Netswap trade to run for one week.
Since our service relies on the percentage movement of an instrument, you should turn the given period into the movement of the instrument and this is achievable through volatility.
Volatility expresses how much an asset moves over a given period of time.
For example, if the USDZAR pair has an average weekly volatility of 4% over the last three months this means that the USDZAR pair moved 4% on average each week in the past three months.
Hence, if you choose a 4% value for a Netswap trade involving the USDZAR pair, you can expect to get stopped out after 1 week from the time of opening the trades.*
How to calculate the volatility of an instrument
Step 1) Open the volatility calculator we sent to you via email at the time of subscription.
Step 2) Open the link inside the Volatility calculator and click on the instrument involved in the Netswap trade. Let’s take USDZAR as example.
Step 3) Click on “Historical data” and then select the “Weekly” Timeframe.
Step 4) Copy the values and past them on each respective column of the “Weekly Volatility” tab.
Step 5) Repeat the step two, three and four for Two-Weeks and Monthly Volatility calculation.
Once all values are correctly inserted in the appropriate columns, the excel file automatically calculates the average weekly, two-weeks and monthly percentage volatility of the instrument over different time horizons.
Example of choice of the percentage movement value for a Netswap trade
Let’s say you find a profitable combination in the USDZAR pair. The net Swap value is 12$ and the total transactions costs are 24$.
The number of days needed to the net swap to absorb the transactions costs are: (24 / 12) = 2.
Let’s say you would like the Netswap trade to run for one week. You decide then to pick the percentage value based on the average of the one-week volatility of the last three months of the USDZAR pair.
The excel file shows a three-months average weekly volatility of 2.5%.
The percentage value for the Netswap trade will then be: 2.5%.
*Please remember that the volatility value is calculated on past prices and you may get stopped out earlier or later compared to the period upon which the volatility was based on depending whether the volatility of the instrument increases or decreases from the time of opening the trades. However, on average you can expect to get stopped out over the period on which volatility was calculated on.
Returning to the above example, you could be stopped out earlier or later than one week period but on average you can expect trades to be closed in one week.