how to hedge the carry trade?
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Thread: how to hedge the carry trade?

  1. #1
    This is regarding carry trading. The last time I looked into this I was 17 years old and the USD federal interest rate was something like 5.25 percent. I just dabble in financial reports nowadays so im not sure what the rate is currently at.

    I want to take a carry trade, while also taking another trade using another pair for a hedge.

    For example: long GBP/JPY
    short USD/JPY

    im assuming the interest I would profit by buying the GBPJPY will be greater than the interest I will pay out (if any) by selling the USDJPY.

    Am I off my rocker here guys?

  2. #2
    Quote Originally Posted by ;
    am I off my rocker here men?
    Entirely!

  3. #3
    Sorry, hit a wrong key!

    Set a min. $200K USD in Euro Merchant Bk account where they give around 4 X capital. Have MB divide the $200K into two loans where it is (instance ) JPY or CHK where the interest cost avg. Is like 2.5% or 3% and the term is 5 years about the loans w/up front origination fee of 1 percent level.

    Then spread the $600K (w 2.5 or 3 X borrowing, more conservative) into a 8 or 10 part short term (1.5yr-2.5yr) bond investments paying an average of say, 7%. The bonds must be Moody's AAA-A government type. When you pencil the 800K gain of 7% return is $56,000 and at a 3% carry cost about the $600K loan(s) at $18,000 one period 5 year charge of $6K averaged over the 5 decades, utilize $1,200. Thus, take $56K less $19.2K = 36.8K/200K = 18.4percent ROI.

    The average interest on high grade short term bonds is many times avgs a greater yield than 7% example and one can, if conservative and select well, get a bonus spiff on the poorer currencies falling against the two (jpy,chk) over the period. And, when the bonds mature one just replaces them with current market short maturities at a perpetual portfolio.

    I have a lot of associates who play with this game and have for more than 20 years....very, really well! Limiter is the opening anti! As much as last year it had been only $100K but the banks won't handle funds with little capital balances anymore. Perfectly legal to do this as long as one reports to IRS as needed.

    OF course, is the currencies move against you can have the top return cut way down....the risk....but still a very conservative drama over the long haul! One cuts the risk by staying very short term in the high tier bond investments. As usual, wealthy people have the advantage in this game.

    Cheers

  4. #4
    Quote Originally Posted by ;
    Entirely!
    Probably . I get up every day and go to a job I despise. Ever seen office area? oh well. If I look at forexintuitive it looks like im functioning =]

    the goal is to take 2 trades so I could hedge against the inevitable appreciation of 1 pair and depreciation of another. In theory I might leave both trades open and one might drift into extreme profit, and another into intense reduction. I could theoretically avoid a margin call because the unrealized profit and loss would offset each other.

    My plan would be to never closing the trades and only collect 200 dollars of interest every day from the brokers leverage!! mwahahahaha!!!!

  5. #5
    Seriously, picking one currency pair against the other pair is for pansies. Yes, you won't lose some money but you won't make any money . Grow a pair and select a direction.

    Now find hot on those TPS reports!

  6. #6
    Nk
    Guest
    Quote Originally Posted by ;
    my plan is to never shutting the trades and just collect 200 dollars of curiosity daily from the brokers leverage!! mwahahahaha!!!!
    For this you would need to have roughly 50 to 100 lots in play both sides...

  7. #7
    Quote Originally Posted by ;
    such as: extended GBP/JPY
    brief USD/JPY

    im assuming the interest I would profit by buying the GBPJPY will be greater than the interest I will cover out (if any) by selling the USDJPY.
    This is not a hedge, it is a faux cross. You are in effect going long GBPUSD and paying extra disperse to your priveledge. Why don't you just go GBPUSD and save the money?

    To have a genuine hedge you would need to go long GBPUSD and simultaniously brief GBPUSD. That would cancel out of your trade and make the entire occasion a pointless waste of transaction costs.

    If you want carry attention go long cable and await the fed to begin rasing rates. Together with the way Obama is spending money, it'll probably be a great money generator for a very long time.

  8. #8
    Quote Originally Posted by ;
    this is about carry trading. The last time I looked into this I was 17 years old and the USD federal interest rate was something such as 5.25 percent. I just dabble in financial reports nowadays so im not sure what the rate is currently at.

    I want to take a carry trade, while also taking another trade using a different pair as a hedge.

    For example: extended GBP/JPY
    short USD/JPY

    im supposing the curiosity I would gain by buying the GBPJPY will be greater than the interest I will cover out (if any) by selling the USDJPY.

    Am I off my rocker here men? ...
    If you have an mt4 account from forex.com
    it provides you swap for sale chf / jpy

    I simply buy the aud/jpy
    and market the chf jpy,

    quite tight correlation, and also positive swap on both ends.

    I also take profit whenever there is a 20-30 pip profit
    opportunity from the fluctuation

    great luck

  9. #9
    Quote Originally Posted by ;
    If you have an mt4 account from forex.com
    it provides you swap for selling chf / jpy

    I simply buy the aud/jpy
    and market the chf jpy,

    very tight correlation, and optimistic swap on both ends.

    I also take profit whenever there is a 20-30 pip profit
    opportunity from the fluctuation

    great fortune
    I dont enjoy forex.com. I used them when I started and if I recall correctly they dont cover swap by adding money to your account, they simply alter the price you entered the trade.

    It all probably ends up being exactly the Exact Same in the end, so perhaps im Only a little OCD

  10. #10
    Quote Originally Posted by ;
    in case you have an mt4 account from forex.com
    it provides you swap for selling chf / jpy

    I just buy the aud/jpy
    and sell the chf jpy,

    very tight significance, and positive swap on both ends.

    I also take profit whenever there is a 20-30 pip profit
    opportunity from the fluctuation

    great luck
    Smart method of thinking

    this poor initial week of Apr. 2012
    there are three news related to interest rates?

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