Why negative interest for Chinese Yuan at Oanda?

Discussion in 'Forex Trading' started by Daal, Jul 25, 2007.

  1. Daal

    Daal

    bid/ask
    -1.5 -0.5
    And I thought no interest was bad.
     
  2. sim03

    sim03

    For a carry trade, long USD/CNY, -0.5% works for you, not against you. You get paid more net interest, compared with either a USD balance or, say, long USD/JPY.

    "No interest" is neither bad nor good by itself. It would be just the ticket for any long-term reverse carry trade.
     
  3. Daal

    Daal

    I believe using CYN as funding currency would cost 1.5% maybe Im wrong
    carry trading this pair should provide small returns given that its moving in a straight diagonal down in favor of the yuan.
    On the other hand since trying going long the yuan with the negative carry will eat the expected return the other side of the trade must the profitable
    I dont know
     
  4. sim03

    sim03

    No, if CYN is the funding currency, that's a carry trade, i.e., long USD/CYN. You get paid extra 0.5%. Play with Oanda's Interest Calculator, you'll see.
     
  5. Daal

    Daal

    the guy from the live chat could not confirm you are right. regardless I think it would be a bad trade. you would collect maybe 1-1.5% percent a year(carry less expected yuan aprecciation) and what prevents the chinese one day say 'ok US congress we will revalue the yuan' and they bump it by 5% overnight?Or just increase the rate at it appreciates?Then the tidy profits goes away very fast
     
  6. I'm no FX expert but I assume it is because the certain appreciation of the yuan is priced in (and its not a free floating currency yet).
     
  7. MrAngry

    MrAngry

    Swaps are quoted in premium or discount, ie the points are added or taken off the spot, which reflects the IR differential. In this case, I think, if you buy yuan sell USD and nothing moves, when you unwind the trade you have to sell less yuan to get your dollars back.
     
  8. sim03

    sim03

    Forget about being right (not a bad piece of advice in this business)... how about taking a few seconds to look it up at the link I gave:


    [​IMG]


    What exactly is there for live chat to confirm? :confused: That their official website tools aren't just messing with you, for the fun of it?

    And yes, it'd be a high risk trade, given the pressure on Beijing to revalue the yuan, not just from Washington. If you put it on, better stay on top of it.