Discussion in 'Forex' started by ElectricSavant, Nov 24, 2005.

  1. Positive Interest Carry Systems

    The power of Compounding and the daily injection of interest for carrying Retail Spot Forex pairs in their positive interest earning direction, must not be overlooked.

    Here is what investopedia says:
    A strategy of holding two offsetting positions, one of which creates an incoming cashflow that is greater than the obligations of the other.
    Similar to arbitrage, positive carries generally occur in the currency market where interest paid to investors in one currency is more than they have
    to pay to borrow in another currency. Another example of a positive carry would be borrowing $1000 from the bank at 5% and investing it into a
    bond paying 6%. Thus, the coupon on the bond would pay more than the interest owing on the loan to the bank, and you pocket the 1% difference.

    Now, combining some grid trading together with carry interest is wonderful in Retail Spot Forex. I call it TradeVesting.

    Michael B.
  2. This works best with a Dealer/Marketmaker that pays you interest to your balance, and not a type of roll over that reduces your average trade entry price, that you would need to liquidate to get the carry interest payment.

    Carry Traders do not necessarily liquidate often.

    Michael B.
  3. Question:
    Electric...How much interest is it?

    The last time I checked the interest earned was 251.75% APR on AUD/JPY when compared to the margin required to hold it
  4. Now imagine this...

    Put together a basket of currencies that hedge each other giving you the time to earn interest that exceeds the swing in UPL (unrealized P/L).

    This I call PICS. Again combine it with trading and you get TradeVesting.
  5. Question:
    Electric, Can you give me an example of two anti-correlated pairs?

    Yes..go long USD/CHF at 145.25% APR and go long with EUR/USD at a cost of 121.25% APR, you pocket the difference, but these interest rates are subject to change. Also keep in mind if you buy these two pair, long on each with the same # of units, you are net long EUR, and short CHF
  6. The idea here TradeVestor's is to ask this question:

    Can I earn enough interest while the Pair or the Basket change value in there quotes to offset that and net me a gain?

    If you prefer to carry without trading then you need to concentrate on the UPL swings and tame them.

    If you trade together with the carry, then you can use TP's (take profit or targets) to fortify your other pairs in the basketWhen earning interest averaging down is ok..

    Michael B.
  7. FredBloggs

    FredBloggs Guest

    so whats the difference between this method, and just holding a eur/chf position (against cash)

    if youre picking up the interest, why not just hold a cd?

    im probably not getting this.....
    (spent most of the day staring at charts looking for new ideas, doing the maths etc - harder work than actually trading!!)
  8. Well... find a basket that nets more than a CD...I have not found a CD paying 32% APR...(add a little trading to the basket and get 76% APR or more if your good...)

    Freddy, I will not spoonfeed you...The primative two pair example and this thread is to get YOU thinking, why else would I do this? Give me my fame and fortune and feed my ego... will ya? :) :)

    There are some correlation tables published at a website on the internet... try searching. I commend you for making the effort to understand this, Fred Bloggs.

    Happy Thanksgiving

  9. cvds16


    I've seen people trying to get intrest like this about a decade ago (or more) with DEM / ITL they loaned money cheaply in DEM and invested at much higher rate in ITL, they made loads of money for years untill they gave it all back in a few days when the ITL suddenly devaluated.
  10. Diversification...Having an Uncle Point...and using house money, combats making a winning strategy into a loser...

    The "sky is falling" can happen to any trader in any instrument...In my opinion, this should not be the sole reason for not trading a system. Eliminating risk as time passes using leverage is impossible. But there is ONE way ask "gnome", he had to buy me a beer.

    Being Neutral the USD and EUR and maybe the AUD...could circumvent many big moves in Currencies. I have baskets that achieve this along with low exposure to the others ...let them devalue the Mexican Peso...I do NOT care as the other side of the hedge compensates and there are 10 PAIRS in one basket and several other baskets that I trade.

    Every Experienced Trader should strive to:
    • Pay themselves a paycheck monthly.
    • Diversify and not over-expose...keep your pants on. A good mix of majors and exotics that dampen the upl and make it non-directional. (trade/treat your basket as one instrument)
    • Place time on your side in a negative-sum game, and eventually phase in to using house money. Turn time around and as every day passes you get closer to getting your original grubstake back and you keep your exposure low enough and diversified enough to endure swings in UPL
    • Define an Uncle Point.

    Michael B.

    #10     Nov 24, 2005