I've had this idea for a trading strategy for about a month now, but I don't know if it will actually work. I thought I'd share it with all of you to see if you can help me out on this.
Here's the idea: Oanda currently pays out a 0.5% swap rate on short CNY positions, when a short CNY position should actually be losing 6%, which I believe is the current domestic interest rate in China. I'm not sure exactly why Oanda does this, but I feel there should be a way to exploit it.
My idea to exploit this would be to hedge a short CNY position on Oanda with a long CNY position at another broker. Both positions would be collecting positive swap while the exchange rate exposure would be effectively zero.
I'm not sure how many FX brokers allow CNY trades, so I thought the next best thing would be to hedge the Oanda position with a USDCNY future contract. I understand that the interest/swap is built into the contract with currency futures, but I don't understand how that would affect a strategy like this.
So what does everybody think? Is this strategy possible? All that's really necessary is the ability to go long CNY to eliminate exchange rate exposure and receive interest on the position.
Here's the idea: Oanda currently pays out a 0.5% swap rate on short CNY positions, when a short CNY position should actually be losing 6%, which I believe is the current domestic interest rate in China. I'm not sure exactly why Oanda does this, but I feel there should be a way to exploit it.
My idea to exploit this would be to hedge a short CNY position on Oanda with a long CNY position at another broker. Both positions would be collecting positive swap while the exchange rate exposure would be effectively zero.
I'm not sure how many FX brokers allow CNY trades, so I thought the next best thing would be to hedge the Oanda position with a USDCNY future contract. I understand that the interest/swap is built into the contract with currency futures, but I don't understand how that would affect a strategy like this.
So what does everybody think? Is this strategy possible? All that's really necessary is the ability to go long CNY to eliminate exchange rate exposure and receive interest on the position.