Currency carry trade

Discussion in 'Forex' started by LeonPhelps, Nov 30, 2006.

  1. This has been talked about before. This method involves taking 10 of the most liquid currencies and going long the 3 with the highest interest and short the 3 with the lowest. Rebalance quarterly 2:1 leverage. This is what the Powershares ETF "DBV" aims to do with est. 0.81% fee.


    1) If you were to do this yourself would you use futures or Forex? Pros and cons of each. Which is more margin intensive?

    2) Apparently this has worked in the past - check out the prospectus. Will it work in the future - who knows? Some around here have said "No way!" but I have yet to read an argument to back this up. Ain't saying there isn't a good argument against the carry trade, maybe I've just missed it. I don't like that 2006 is the worst year for this strategy since it's historic backtest to 1994. Is the system broke?
  2. No response? Guess the carry trade does work then...
  3. You think money grows on trees? It's not too hard to figure out what can go wrong.
  4. Illi-
    Any comment/analysis on the above ETF?
  5. You mean if it will work or not? It will work until it doesn't. Would you invest in a Google ETF which tracks the upside gains in a stock called GOOG? So far, an ETF of that kind would show an excellent 2-year record . . .

    As for how well it rates vs other ETF's, that's beyond my ken. Again, you don't get anything for free, so overall "slippage" for encapsulating a multiple-cross carry trade would be high, I'd assume.