Cash & Carry (Standard)

Discussion in 'Journals' started by ElectricSavant, Dec 10, 2005.

  1. This is a public system that I wrote.

    I found the combination of Retail Spot Forex Pairs at another Forum and tweaked a spreadsheet for it. The author told us that we should do our own research and due-diligence, so I did.

    Before I found that post, I had traded several baskets of Retail Spot Forex Currency pairs. I always thought that the spreads and the movements of exotics were too much, until I found this hedged basket and reverse engineered it to find the weightings.

    The profit is made from interest being paid for the "Carry" of these ten pair. One pair does not earn interest, but is needed to complete the hedge, while maintaining neutrality in the EUR and the USD.
    • NZD/USD
    • AUD/JPY
    • USD/CHF
    • USD/MXN
    • USD/NOK
    • USD/SGD
    • EUR/CZK
    • USD/ZAR
    • EUR/HUF
    • GBP/JPY

    AUD = Australian Dollar
    CHF = Swiss Franc
    CZK = Czech Koruna
    ES = ElectricSavant ®
    EUR = Euro
    GBP = Britsh Pound
    HUF = Hungarian Forint
    JPY = Japanese Yen
    MXN = Mexican Peso
    NOK = Norwegian Kroner
    NZD = New Zealand Dollar
    SGD = Singapore Dollar
    USD = US Dollar
    ZAR = South African Rand

    I would like to try and teach this system named, Cash & Carry (Standard).

    Michael B.
  2. The choice of your dealer/marketmaker is up to you.

    In Retail Spot Forex there is profit to be made through trading and through a less-known method of simply the "interest earned" for holding certain pair in an "interest positive direction". Many Retail Spot Forex dealers pass on this interest that they earn through their hedged holdings to you.

    The requirements for this system to work, is to choose a dealer/marketmaker that pays interest to your account balance. A dealer/marketmaker that adjusts your average trade price daily at rollover, causing the need to liquidate to realize the interest earned does not work with Cash & Carry (Standard). You see Cash & Carry (Standard) never closes a trade. Why would it? It makes its income from the "carry". There will be times when you "add to" this system with unit size trade increments.

    Another requirement is that your dealer/marketmaker allows one unit trade increments in its trade ticket. Most have mini's and lots which are 10k units and 100k units. Some dealer/marketmakers have recently introduced base 10 tickets which are 1k units. BUT YOU NEED SINGLE UNIT CAPACITY.

    Lastly, You will need access to these 10 pair with your dealer/marketmaker.

    Michael B.
  3. This system has been traded live for over a year by others. I have personally traded it for three months and am pleased with it, so far.

    What I have learned, is to not get over exposed and simply follow the weightings and trade this basket as one instrument. I expect to make about 32% APR/ROI a year.

    This system does not require you to sit in front of the computer all day. You simply need to check in and update your spreadsheet daily and make some occasional 'add to's", with a tweak that I added to this "Buy & Hold" system.

    You can occasionally draw out income from this system during positive unrealized profit and loss (upl) times.

    This system trades with an Uncle Point of 30% and there are not any hard stops. This system tries to maintain no more than 15% drawdown (DD) with adjustment to exposure at "add to" times. Again, one never closes a trade in Cash & Carry (Standard). These percentages are once a day snap shot values and not intraday. The daily spreadsheet calculates and reports once a day at interest payment time, between 15:00-17:30 est.

    Michael B.
  4. The idea here is to expose yourself, according to your tolerances to get enough time to earn interest. The low exposure maintained is to cause you to survive the "ebbs and flows" of the upl.

    The pairs have been chosen carefully to avoid big swings in upl.

    When your profits exceed your Uncle Point, that is a day to celebrate.

    So, in the beginning it is a race to get the time needed to accumulate profit and to finally eliminate risk, truly putting time on your side at that point. Every day and every weekend after your uncle point is exceeded, is money in your pocket without risk.

    Yes, leverage without risk. There are marketmaker/dealers that guaranty in writing that you will never have a negative balance and will never have to cut them a check and return money to them. Please do not ask this name of the dealer/marketmaker here or by PM, as it violates ET policy.

    Michael B.
  5. Now some of you may be asking how much could this "interest earned" be?

    You see... you get paid real live money based on paper holdings...yes on the leveraged amount of your pair held in the interest earning direction. (Some of them are long and some of them are short)

    For example: (updated 11/05/05)
    • NZD/USD 133.75% APR
    • AUD/JPY 251.75% APR
    • USD/CHF 145.25% APR
    • USD/MXN 114.38% APR
    • USD/NOK 56.25% APR
    • USD/SGD 18.13% APR
    • EUR/CZK -6.28% APR
    • USD/ZAR 53.13% APR
    • EUR/HUF 77.42% APR
    • GBP/JPY 204.25% APR

    So...why not enter just one pair, why go to all this trouble? Well the answer is, this is a one-directional trade and as you know an instrument does not go in one direction forever.

    So, the question becomes, will the interest earned keep pace with the volatility of the instrument and its adverse direction to avoid a margin call?

    So, why not try to find pairs that move opposite to each other while earning interest? This is the Hedge.

    Michael B.
  6. We got the what, the why, the when and the I will address the how...

    See attached below:
  7. mahras2


    Sounds good michael. However, what happens when there is a change in the interest rates? How would the system take that into account?
  8. Well its been over a year....

    Pairs can be replaced, but not needed yet, there are 33 of them where I trade and as long as the neutrality of the EUR and USD is maintained, then the crux of this system would not be compromised if this pair replacement were to occur.

    so far when one interest rate goes up, another pair goes down and vice versa...

    Michael B.

  9. mahras2


    Okay. So basically you are using correlation to hedge off the excess risk?

    It will be interesting to see how it deals with interest rate changes. It is great that the system is EUR and USD neutral.
  10. I hope to be around that long and I hope I can continue to provide enough material for the inquiring minds of ET :)

    The time needed is to exceed the Uncle Point! So far, EVERY ONE of these pair (except EUR/CZK) continue to pay interest for the last year and a half, maybe longer, it is difficult to check unless your trade forward, like I am...

    The spreadsheet that I published is real live trades, with real live money.

    Michael B.

    #10     Dec 10, 2005