Aud/jpy

So basically anyone who carried this pair for the interest differential until now has given back, say, 30 weeks worth of carry in a couple sessions? Is that correct?

 

Pretty much, if they didn't cash out.

 

Okay, I just eyeballed it. The point being: if one could time the direction of the pair to know when exactly it was right to "cash out", one wouldn't be bothering with the interest carry in the first place.

 

Good point.

 

Of course, they cashed out...it doesn't look as sudden move at weekly and daily basis.

 

Yes, AUD/JPY dropped 3.00% in 2 days. If you study the price action of this pair, you'll see that this sort of volatility (up or down) is not at all uncommon. As recently as Dec. 14th, we saw a nearly 3% drop in a single day, as part of a 5.5%% decline over 5 days in a row. Its average daily vol. over the long term is close to 1%.

I am not sure what your original point is, though. Given this pair's dynamics, clearly, no sane CTA, hedge fund manager or anyone else is going to put on a solo long aussie-yen position and, pleased with themselves, walk away for a year, or a month, or a week, or even a day. That's anything but how a properly structured carry trade works.

 

I didn't cash out. And I didn't give anything back.

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My not-so-profound point is that there is no edge in just rate differentials, that is all. If you can call the "turns" in a timely manner, why bother with a few pips a week in carry when you can just outright trade the pair in either direction. There is no "free money" from a carry trade, as the differential may have likely already been discounted by others who have entered the trade before you. The added volatility to the downside upon their exiting the trade can more than make up for the interest.

The practical bottom line is: the few pips a week just aren't worth it, if they color your objectivity in evaluating a given currency. There are often good reasons why certain currencies pay out what they do (check out Icelandic Krona lately), so don't let the clang of loose change deposited "daily" into your account distract you from all the opportunities available out there. Just me .02.

 

Let me guess, you never cashed out but went short aud/jpy instead as well? Gotta love that "magical" world of forex.

 

Agreed.

Indeed, without a viable trading structure, trading system and trading strategies in place, no positions warrant being opened for any reason(s).

That extends to "traders" in general; even those fancying themselves as trading for a living: Most shouldn't even be in the market.

Then again, many of the best traders account as liquidity providers... so the rest of us can make money.

Good point!

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