Carry Trade shorting USD/TRY 16%+ interest!?!

Discussion in 'Forex' started by peilthetraveler, Oct 9, 2008.

  1. What am I missing? New Turkish lira doesnt seem much more volitile than the rest of the currencies. 10k bucks in an account and short one 100k lot and collect 13% interest per month! How come everyone isnt doing it?
     
  2. Sorry, my math was off...looks more like 11.25% per month, not 13%
     
  3. 11.25% per month would be nice! It's actually around 13% per year and everyone is doing it, it's called the carry trade.

    A 100k Short position Usd/Try on Oanda pays 15.75% pa on the TRY you're buying and charges 2.05% for the USD you're using to buy it. 15.75% minus 2.05% equals 13.7%. 100k @ 13.7% equals 13,700 per year, divided by 365 days equals $37.53 per 24 hours. Oanda's calculator is here.

    Carry traders don't like market volatility and risk so they 'unwind' (cover) their Short positions at times like this. Any rallies are probably a selling opportunity when things quieten down a bit.

    ~

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  4. You have currency risk as well, which can wipe you out.
     
  5. In fact it is 11% return per month, because original post was about 10x leveraged account.

    But what if Lira falls by 10% ? All the money will be lost.
     
  6. The lira is VERY volatile. I've seen 20-30% swings in it in no time.
     
  7. Check the web for Turkey's story, 1982-2005. Their stock market went up more than 2,000,000% due to inflation, but when the devaluation came, even those who'd made all the stock market gains lost 98% of their capital's buying power.


    In 2005, Turkey devalued its currency by 1,000,000:1
     
  8. He would actually have a 100k position though, and the risks associated with it, just because his deposit is leveraged doesn't make any difference.

    Think of it like a mortgage, the % gain/loss is calculated as a percentage of house value rather than equity invested.
     
  9. Daal

    Daal

    BRL also has a massive carry yet the currency has plunged. TRL has all kinds of polical risks, default risks, inflation risks. why take carry trades in a global recession