New Alpha - Triangle Exchange Rate

Algorithm.Python/Alphas/TriangleExchangeRateArbitrageAlpha.py

@@ -0,0 +1,124 @@
+# QUANTCONNECT.COM - Democratizing Finance, Empowering Individuals.
+# Lean Algorithmic Trading Engine v2.0. Copyright 2014 QuantConnect Corporation.
+#
+# Licensed under the Apache License, Version 2.0 (the "License");
+# you may not use this file except in compliance with the License.
+# You may obtain a copy of the License at http://www.apache.org/licenses/LICENSE-2.0
+#
+# Unless required by applicable law or agreed to in writing, software
+# distributed under the License is distributed on an "AS IS" BASIS,
+# WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+# See the License for the specific language governing permissions and
+# limitations under the License.
+
+'''
+    
+In a perfect market, you could buy 100 EUR worth of USD, sell 100 EUR worth of GBP,
+and then use the GBP to buy USD and wind up with the same amount in USD as you received when
+you bought them with EUR. This relationship is expressed by the Triangle Exchange Rate, which is
+
+    Triangle Exchange Rate = (A/B) * (B/C) * (C/A)
+    
+where (A/B) is the exchange rate of A-to-B. In a perfect market, TER = 1, and so when
+there is a mispricing in the market, then TER will not be 1 and there exists an arbitrage opportunity.
+
+This Alpha Model is an implementation of this theory.
+
+
+
+This alpha is part of the Benchmark Alpha Series created by QuantConnect which are open
+sourced so the community and client funds can see an example of an alpha.
+    
+'''
+
+from clr import AddReference
+AddReference("System")
+AddReference("QuantConnect.Algorithm")
+AddReference("QuantConnect.Common")
+
+from System import *
+from QuantConnect import *
+from QuantConnect.Algorithm import *
+from QuantConnect.Algorithm.Framework import *
+from QuantConnect.Algorithm.Framework.Risk import *
+from QuantConnect.Orders.Fees import ConstantFeeModel
+from QuantConnect.Algorithm.Framework.Alphas import *
+from QuantConnect.Algorithm.Framework.Selection import *
+from QuantConnect.Algorithm.Framework.Execution import *
+from QuantConnect.Algorithm.Framework.Portfolio import PortfolioTarget, EqualWeightingPortfolioConstructionModel
+
+from datetime import datetime, timedelta
+
+class TriangleArbitrageAlgorithm(QCAlgorithmFramework):
+
+    def Initialize(self):
+        
+        self.SetStartDate(2019, 1, 1)   #Set Start Date
+        self.SetCash(100000)           #Set Strategy Cash
+        
+        ## Select trio of currencies to trade where
+        ## Currency A = USD
+        ## Currency B = EUR
+        ## Currency C = GBP
+        currencies = ['EURUSD','EURGBP','GBPUSD']
+        symbols = [ Symbol.Create(currency, SecurityType.Forex, Market.Oanda) for currency in currencies]
+
+        ## Manual universe selection with tick-resolution data
+        self.Universe.Resolution = Resolution.Tick
+        self.SetUniverseSelection( ManualUniverseSelectionModel(symbols) )
+
+        ## Set $0 fees
+        self.SetSecurityInitializer(lambda security: security.SetFeeModel(ConstantFeeModel(0)))
+
+        ## Set custom Alpha Model
+        self.SetAlpha(ForexTriangleArbitrageAlphaModel(currencies, Resolution.Second))
+        
+        self.SetPortfolioConstruction(EqualWeightingPortfolioConstructionModel())
+        
+        self.SetExecution(ImmediateExecutionModel())
+        
+        self.SetRiskManagement(NullRiskManagementModel())
+        
+    
+    
+class ForexTriangleArbitrageAlphaModel:
+    
+    def __init__(self, currencies, insight_resolution):
+        self.TriangleRate = 0
+        self.currency_a = currencies[0]
+        self.currency_b = currencies[1]
+        self.currency_c = currencies[2]
+        self.insight_resolution = insight_resolution
+        self.insight_period = Time.Multiply(Extensions.ToTimeSpan(self.insight_resolution), 5)
+
+    def Update(self, algorithm, data):
+        insights = []
+        
+        ## Extract QuoteBars for all three Forex securities
+        bar_a = data[self.currency_a]
+        bar_b = data[self.currency_b]
+        bar_c = data[self.currency_c]
+
+        ## Calculate the triangle exchange rate
+        self.TriangleRate = self.CalculateTriangleRate(bar_a, bar_b, bar_c)
+        algorithm.Log(str(self.TriangleRate))
+        
+        ## If the triangle rate is significantly different than 1, then emit insights
+        if self.TriangleRate > 1.00015:
+            insights.append(Insight(self.currency_a, self.insight_period, InsightType.Price, InsightDirection.Up, 0.0001, None))
+            insights.append(Insight(self.currency_b, self.insight_period, InsightType.Price, InsightDirection.Down, 0.0001, None))
+            insights.append(Insight(self.currency_c, self.insight_period, InsightType.Price, InsightDirection.Up, 0.0001, None))
+        
+        return insights
+
+    def CalculateTriangleRate(self, bar_a, bar_b, bar_c):
+        
+        ## Bid(Currency A -> Currency B) * Bid(Currency B -> Currency C) * Bid(Currency C -> Currency A)
+        ## If exchange rates are priced perfectly, then this yield 1. If it is different than 1, then an arbitrage opportunity exists
+        return bar_a.Bid.Close * (1/bar_b.Bid.Close) * (1/bar_c.Bid.Close)
+        
+    def OnSecuritiesChanged(self, algorithm, changes):
+        
+        ## Set fees = 0 tom better mimic HFT
+        for security in changes.AddedSecurities:
+            security.FeeModel = ConstantFeeModel(0)

Algorithm.Python/QuantConnect.Algorithm.Python.csproj

@@ -40,6 +40,7 @@
     <Content Include="Alphas\GlobalEquityMeanReversionIBSAlpha.py" />
     <Content Include="Alphas\MeanReversionLunchBreakAlpha.py" />
     <Content Include="Alphas\RebalancingLeveragedETFAlpha.py" />
+    <Content Include="Alphas\TriangleExchangeRateArbitrageAlpha.py" />
     <Content Include="Alphas\TripleLeverageETFPairVolatilityDecayAlpha.py" />
     <Content Include="BasicSetAccountCurrencyAlgorithm.py" />
     <Content Include="BasicTemplateFuturesFrameworkAlgorithm.py" />
@@ -241,4 +242,4 @@
   <Target Name="AfterBuild">
   </Target>
   -->
-</Project>
+</Project>