I am thinking of taking a long-term position in Hong Kong Dollars because I think that the HKD will be revalued upward relative to the USD sometime in the next two years. One way to do this is convert available USD cash to HKD and I have already done that much. I have an Interactive Brokers account and it was simple to convert most of the cash to HKD. IB allows cash in any currency to be used as margin for trading stocks and futures in other currencies so that is excellent. Beyond that, suppose that I want to hold an HKD position on a leveraged basis. I have been reading that one way to do this is to make an FX trade and continually roll it forward every day instead of settling it. I cannot find any information on how to actually do that although there is some mention of it on IB's web site. Another alternative seems to be to simply convert more USD cash than I actually have into HKD, simply creating a negative USD balance. IB allows that. There would be a small interest cost. Are these really two different ways of holding an HKD position? Which is commonly used? What are some of the pros and cons? I guess that a still third way would be to enter into a forward contract, although I do not think IB offers those. I know that the Banks do, but I have the impression that they are expensive. So which of these 3 may make sense? Or where can I read more on this issue? Thanks for any replies.
Oanda may have an alternative for you...USD/HKD...but with what you are explaining the gap may not be affected...considering the plight of the USD and the effect on trade. ES P.S. Did I get my affect and effect right....hmmm...my grammar is suffering
I have come to the conclusion that in the case of IB as well, you can just place the Forex trades and not worry about which will be conversions and which will be pair trades and which will be borrowings in one currency or another. Since there is no way to specify which of these you intend, it evidently does not matter. It seems that in the end they just look at your net position in each currency for margin and interest purposes. Oanda may have advantages for active traders (I know it is very popular) but for position trades like mine, IB should be excellent too. P.S. Your diction is impeccable.
Hi Comintel, I've been playing around the same idea for a while but was put off by the interest charge. With a IB retail account we recieve no interest for the HKD we hold while paying a 1.x% interest for the USD we borrow. With a leveraged position say 10x that's a 1x% hit per year and it gets worse with higher leverage. Getting into high leverage and take advantage of the peg behind your back is what this idea is all about... My conclusion was unless we could time the unpeg precisely say within months to keep interest charge low it's quite expensive to put on such position... What do you think?
You have a darn good point re the interest adding up! So far I have just done it with cash already in the account (I sell options a lot so I always have more cash then equity) I would like to lever it up. I guess 2x is bearable. I do think that there is a chance that the peg could break in our favor at any time but it certainly could take years. I guess one could look for currency forwards or options from a Bank but costs would mount. I was not able to find HKD futures anywhere. Maybe one could find a proxy in some stock or some such. I will keep looking.
Comintel, Just found this thread via google. Looks like the big boys (aka, Bill Ackman) are agreeing with you now. Did you ever find a proxy for cheaply leveraging the HKD?
Yes I saw that re Bill Ackman. I could not find a proxy or good way of doing it other than a forex trade. I had the forex trade on for a while but took it off a while ago when the chief executive of HK said there would not be a change. The forex position does have a margin cost. I will put it on again at times where it seems plausible. You can trade the pair with a short USD bias and I have done that a little.
See also http://www.zerohedge.com/news/bill-...deutsche-bank-2010-and-why-db-thinks-it-wrong and http://www.scribd.com/doc/65252889/DB-Hong-Kong-Peg for a refutation.