Futures currency / Spot currency spread trading

Discussion in 'Strategy Development' started by smiley486, Sep 23, 2008.

  1. Hi,

    Has anyone looked into this? or could also be called pairs arb trading?

  2. Yuu can try it but forward rate risk usually puts the brakes on this for most small guys.
  3. rosy2


    yes. cost of carry
  4. You won't be able to compete with the big banks in that type of trade.
  5. I just want to make sure that i am thinking this correctly.

    If for example,

    I buy 1 ADZ8 (Aus dollar Dec8 contract, $12.50 a point) and sell 125,000 spot AUD/USD with a spread of 70.
    And after 1 day i unwind at a spread of 52.

    Will this still make money? Or is cost of carry too much for the short AUD/USD trade? How do I calculate the cost of carry?

  6. the acrued interest that you will pay on aud cash will be higher
    than what you get from the future contract
    ex: short 100000 aud cash and buy 1 aud future
    aud future =100000 us dollars or vice versa

    " no free lunch"
  7. Do you know how to calculate the cost of carry?
  8. Have you looked at CME's Currency Futures options?
  9. No i have not looked at it yet. Is it a liquid market? Do you trade CME currency options? Where am I able to trade these?

    I was looking into the spread trading of futures and spot currency.
  10. You could use the interest calculator by Oanda - http://fxtrade.oanda.com/tools/fxcalculators/interest_calculator.shtml

    But of course, your actual cost of carry will depend on the particular interest rates that your broker gives you.

    The example in your earlier post, wherein the spread reduced from 70 to 52 overnight would have made a net profit of about 12 pips after accounting for commissions, bid/ask spread and interest.
    #10     Sep 24, 2008