How to account for carry cost with historical data??

Discussion in 'Data Sets and Feeds' started by farley, May 14, 2005.

  1. farley


    I have traded FX for years, both at banks and on my own account. While I have been moderately successful in doing so, I've recently become intrigued with the idea of backtesting a number of trading strategies I have come up with over the years.

    I have access to Reuters and Bloomberg terminals, and all the historical data I need. But when using this historical data to backtest trading strategies, how do I account for the cost of carry of being long or short the higher interest rate paying currency?

    In otherwords, my models simple use the historical spot FX data but I'm not sure how to account for the daily interest that is earned or paid on a daily basis when rolling the spot position. So my backtested results could be very unreliable...

    Anyone have a simple solution to account for this?
  2. Look at Oanda's FX game. Plug in your pairs. They also have a little calculator in FXMath..

    There is not a rollover at Oanda (unique), but you can get the interest rate of the pairs in USD...

    Michael B.
  3. farley


    Thanks. I'll check that out.

    Does Oanda provide this information on a historical basis? My FX data goes back to 1982 but without adjusting for cost of rolling positions everyday I won't be able to rely on my backtesting results.

    The only other thing I can think of is to get historical interest rate data for the same periods and calculate the forward points myself...
  4. Here are the formula's for the spreadsheet to "build" your historical data forward. I manuelly update it once or twice a month. I do not know how to go back in time. (I did not save my old spreadsheets)

    As far as I know Oanda does not provide the historical data that you require. I had to make this spreadsheet myself to keep myself current.

    Michael B.

    see attached
  5. Why don't you just use currency futures data as a proxy? Unless your strategy is specifically dependent on carry as a mechanism for P&L, futures prices should suffice.