Free beer at InstaForex? Zero delta hedge with positive swap

[Speido]

Hey there,

I was researching currency rings with no market exposure (at least with only minimal leakage) that should collect swap interest. As one could expect, there is no money laying around and all rings turned out to have negative swap or in rare cases to break even.

But I recently opened a live account with InstaForex. Their swap rates are quite good so I ran my scripts just for fun. It turns out there is a hedge that would break even after around 20 days with absolutely no market exposure. This seems too good to be true so I digged into their agreement:

5.8. In case there is a complete lock positions, including the system with the triple lock and others, despite the presence of the complete lock of all position at the account, the total swap on the lock positions is not equal to zero, the Company and a Client are obliged to correct the swap, because with the absence of the non-lock share of the position the total swap can be neither positive nor negative.

I really don't understand what this means. Maybe someone can decipher it. Is it allowed to collect swap from a hedge with no market exposure?

Thanks for your help!

[Alpenkorps]

Simple! If they find out that you are taking advantage of it or using a system that is producing positive swap without any exposure, they have the right to correct it = cancel the positive earnings. In General, they all are Criminals, But Instaforex? Oh man! They are like Super Criminal.

[Speido]

Doesn't that also mean that the client has the obligation to correct the (non-zero) swap if it is negative, which is the case in 99% of the time?

[garyfritz]

Good luck with that!

[Speido]

I saw mainly negative comments about InstaForex, but I usually run some objective tests to see for myself. What I found so far is acceptable. They have high spreads, but with cashback it's not that bad on most currency pairs. Order execution times are on average under 1s (well there are a few outliers with 3 seconds) and closing positions in profit takes on average 300 ms longer than with loss. The data stream is highly filtered and tick frequency is low. Swap rates are far better than on most brokers. They do pay an 13% annual interest which is a big plus. Base units are 10000 so positions can be sized very precisely. This seems to be a good broker for position trading and swap gathering, scalping strategies would perform better on other brokers. Now if I don't run into problems with withdrawals this broker isn't bad at all.

I did open the hedge and am now in profit. I know that this is coming directly out of the pockets of Instaforex and I won't know if I can keep it until I close the hedge (I will test it in a few months). Based on my calculations 5000 € can be easily compounded into 100000€ in less than a year, but I am more than certain that the withdrawal would be impossible. In my experience brokers don't care if they make a loss on a position as long as they do make profit from the whole account. Therefore I keep a low profile.

[Speido]

As a quick update: yes, there were a few free beer at InstaForex.

hedge2.jpg

They eventually saw their mistake and the swap on AUDNZD is no longer positive on both ends. A few days ago I successfully withdrew all winnings from the account (around 4000€ ).

A friend of mine did heavy compounding of all daily winnings and reached almost 500 €/day and InstaForex closed his positions (canceled the swap) because of violation of paragraph 5.8, that we discussed. So I guess if you drink too much you wake up with your money gone...