If I do a AUD-USD currency pair at 5x leverage, does that mean I would get an annualized ~ 20% yield on my position? And is there somewhere to find yields on currency pairs? I googled around and can't find anything. Thanks
Strictly speaking, no. Because you are borrowing 4x USD and have to pay higher interest on this than large banks pay. Further, you are likely to get somewhat lower return on the AUD side than "benchmarks" suggest because teh broker applies a spread to amek money. How much you ultimately make will depend on the broker and instrument you choose. (Currency futures may often be more efficient>)
Tnx for the reply. OK, but I might get say 15%, by what you're saying. None of the FX brokers mention much about the yield . . . I'm guessing the clientele doesn't care.
Bigger and more open brokers have these figures on their Web-sites. They say you pay a certain benchmark rate plus specified spread on your 4x USD borrowing and you receive another specified benchmark rate minus specified spread on your 5x AUD position. These may be difficult to make sense of without a calculator but they ultimately explain exactly what "carry" a customer earns. Other brokers are more subtle about this as they assume with current currency volatility few clients care about the carry. The most dishonest brokers explain in "small print" that the "benchmark rate" is not a recognised benchmark but an arbirary rate set by the commitee set up by the broker. I strongly recommend to avoid those. When you make a long term commitment you want it to be well-defined and not based on the broker's arbitrary choice.
Let me try to express my opinions here for a minute even if people might disagree and want to debate my opinions. First, a clarification of the situation. * Greece had to accept budget reductions of 30 billion in order to take the bailout money * These budget cuts will cause a more serious recession in Greece * The recession will make it more difficult for Greece to pay the 5% interest on the money they will receive Even if the EU starts buying bonds and the euro, this will not change the situation. It will simply slow down the crisis. The only possibility that I've heard on Bloomberg to solve the situation is to allow Greece to default on their debt. The hedge funds ect who believe in laissez-faire economics will hammer the euro once the EU decides to support the euro. The EU will lose and be forced to allow Greece to default on their debt. Oil will go down because people will be concerned about another worldwide recession. This will cause the AUD/USD to go down as commodity prices go down. You will lose your shirt by buying the Aussie. If the EU succeeds in stopping this freight train towards a wreck and you make money on the Aussie, you'll get my congratulations. I'll also be absolutely stupefied or whatever you want to call it that the EU has managed to save the day with Keynesian intervention. I believe they have a lot of audacity to believe government intervention will totally change the situation. If they manage to do that, I will start believing that the Eurozone is Godlike and worship them forever.
clambill, I agree with most of your post but I think you have posted in the wrong thread. This one is about the amount paid out by foreign exchange brokers on a carry trade.
I can assume that this is adult like everyone else in the world and he can make a decision on his own. However, I wanted to point out the interest on the position outweighs potential short term benefits. When markets starts to recover after a crash, yes, the Aussie would be interesting. And I suppose he might be thinking ahead to when the markets stabilize after a meltdown.
Well, if anybody's wondering, just made my first FX trade, selling 20,000 euros. In about 15 minutes the Euro fell off a table and sold off 50 pips, if I have the lingo right. This is so frickin easy. Anyway, I can see how it attracts so many degenerates with his last $500. Around the clock trading, huge leverage, tight spreads . . . This is like trading crack. Reminds me of the legendary Stewart. http://www.youtube.com/watch?v=WOKD...59008905&playnext_from=PL&playnext=1&index=89