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Joined Aug 2006
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Status: High risk, low reward
|318 Posts
what regulations are in place to stop me opening a swap account with one broker and a swap free one with another and perfectly hedging in both, simply accumulating the swaps?
quote of the day:
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It's like deja-vu all over again
what regulations are in place to stop me opening a swap account with one broker and a swap free one with another and perfectly hedging in both, simply accumulating the swaps?
There are no regulations...if you can do it, great...works fantastically.
Ignored
Okay, dumb newbie question here. I have read a ton of threads discussing the mechanics of implementing this hedge. Mostly it is suggested to use a Sharia account for the short side of the hedge, although I think I have also seen it proposed to use an account that does not pay/charge interest if you are leveraged to the hilt. After a while the threads all peter out. I don't often see anyone come back months or years later reporting that it worked like a charm for them.
Point is, it does seem quite doable, and truly a great way to earn an exceptional return with very little work. So my question: what is the "if" about it that you mention? Does no one come back to report on these threads because they are too busy counting their money? Or is it because the "if" bit them?
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Joined Mar 2006
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Status: Pip Samurai
|975 Posts
Not a silly question at all...totally valid.
The "IF" usually gets people. These 100% hedges work as long as the non-swap broker allows it to.
I was able to register with a non-discrimantory broker and make it work for 3-months before my profit became too large for that broker to handle and I was told I could no longer take advantage of the situation.
you see, going long the yen was pretty much free money for these non-swap brokers even though they didn't collect on the swap...those positions could normally be held forever because they generated nothing but losses. However, once the Yen recovered (and my positions were massive, you have to understand), my positions turned positive (massively), at which point they had a choice...keep my position and risk increasing their losses OR sell my positions to a bank at which point they would be charged daily for the swap. Most smart money would have gotten rid of those positions, and so, since they were going to be charged the swaps, they were going to sure as hell charge ME for those swaps.
The trick is understanding how swap-free accounts work. They work because 1) not many people use them and 2) most positions can be countered within their clientel, which means losses could be held longer than winners and thus they didn't have to lose or leave any money selling to a higher tier.
I'm sure there are some hedges still open now, but those positions will eventually turn positive if held long enough, and those accounts will be reverted to normal transactions.
Okay, dumb newbie question here. I have read a ton of threads discussing the mechanics of implementing this hedge. Mostly it is suggested to use a Sharia account for the short side of the hedge, although I think I have also seen it proposed to use an account that does not pay/charge interest if you are leveraged to the hilt. After a while the threads all peter out. I don't often see anyone come back months or years later reporting that it worked like a charm for them.
Point is, it does seem quite doable, and truly a great way to earn an exceptional return with very little work. So my question: what is the "if" about it that you mention? Does no one come back to report on these threads because they are too busy counting their money? Or is it because the "if" bit them?
Okay, so it works but it is likely the broker will eventually stop you. I too am looking at putting on some very large positions, which as you say increases the likelihood of being stopped.
I have seen some people claim that as long as you throw the broker some other small trades periodically they will not shut you down, can you comment on the likelihood of that?
I also read somewhere that some brokers don't pay/charge interest if your margin is above 50:1 or something like that, but I can no longer find the thread. I would never want to operate with such high leverage, but I think the thread advised funding the short side account with more than the minimal margin and letting the available margin just sit there. Assuming I have that right, this would be a swap-free non-Sharia account. Would the same likelihood of being shut down exist?
Another possibility seems to be to enter the long side only just before triple interest is paid on Wednesday and exit right after. I think the wide spread on NZD/JPY would cause you to get creamed, but it might work on USD/JPY. I have to do some checking. It's sort of like doing a dividend capture but without the risk of the stock declining afterwards. Is this also something the brokers are likely to shut me down for? Or maybe theywill just find some way to cream me during the few minutes I am in the trade each week...
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Joined Mar 2006
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Status: Pip Samurai
|975 Posts
I cannot comment on "throwing" the brokers small trades. Honestly, I'm not exactly sure how you would benefit from doing this because even if you did, 1 of 3 things happens 1) you don't make a profit on your trades and you eat away at your "swap" profit 2) you make a profit on your other trades, and the broker still has to sell your positions or 3) you don't make a profit on your small trades, but you still make a profit on your big "swap" trade and they still have to sell that position, and thus stopping you out. I can't comment, mainly because I don't really know.
It used to be the case with FXCM that they would not PAY you swaps if your leverage was above 50:1...they would CHARGE you regardless.
The likelyhood of a shutdown will exist if your position is large enough regardless of what percentage of your money is sitting there, I would assume. I suppose it's entirely possible that the broker could be using your margined funds for "profitable" purposes, but probably not enough to outweigh the profitability of a massive position sold to a higher tier.
Entering before triple interest has been a strategy that I've seen but not necessarily used. Even though you would technically out weigh the spread, some brokers disallow trading for a few minutes...and believe me...every pip will count...so, in order to make some serious cash (mind you this would only be a weekly trade), you would need to trade tremendous sizes...which would only add to the risk.
Look, if you're interested in swap strategies, do some personal research with small accounts to see if you could profit from them. Use micro-accounts and see if you can trade profitably and then bump up the sizes when you believe you've mitigated the risk. I can tell you everything I know, but chances are you'll still be wanting to take a chance on these strategies anyway, so dive in with a tiny account.
Okay, so it works but it is likely the broker will eventually stop you. I too am looking at putting on some very large positions, which as you say increases the likelihood of being stopped.
I have seen some people claim that as long as you throw the broker some other small trades periodically they will not shut you down, can you comment on the likelihood of that?
I also read somewhere that some brokers don't pay/charge interest if your margin is above 50:1 or something like that, but I can no longer find the thread. I would never want to operate with such high leverage, but I think the thread advised funding the short side account with more than the minimal margin and letting the available margin just sit there. Assuming I have that right, this would be a swap-free non-Sharia account. Would the same likelihood of being shut down exist?
Another possibility seems to be to enter the long side only just before triple interest is paid on Wednesday and exit right after. I think the wide spread on NZD/JPY would cause you to get creamed, but it might work on USD/JPY. I have to do some checking. It's sort of like doing a dividend capture but without the risk of the stock declining afterwards. Is this also something the brokers are likely to shut me down for? Or maybe theywill just find some way to cream me during the few minutes I am in the trade each week...
All excellent advice, thank you. I had no intention of diving in right away with large trades, but I appreciate your words of caution. You're right, I will probably want to try this myself no matter what.
quote of the day:
.
It's like deja-vu all over again
