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IRA(interest rate arbitrage)

  • #1
  • First Post: Nov 6, 2006 11:19am Nov 6, 2006 11:19am
Hi,

is anyone taking advantage of IRA(interest rate arbitrage)?
There is an interesting atricle about that @ FF:
It suggests that there's a method for consistent, safe profits using IRA & hedging.

Cost & Carry (The "perfect" Hedge)

Now I wonder if any trade here is using a concept like this one?
  • #2
  • Nov 6, 2006 11:33am Nov 6, 2006 11:33am
Quoting tradeigel
Hi,

is anyone taking advantage of IRA(interest rate arbitrage)?
There is an interesting atricle about that @ FF:
It suggests that there's a method for consistent, safe profits using IRA & hedging.

Cost & Carry (The "perfect" Hedge)

Now I wonder if any trade here is using a concept like this one?
Not me. At least not for the moment.
  • #3
  • Nov 6, 2006 11:59am Nov 6, 2006 11:59am
Quoting tradeigel
Hi,

is anyone taking advantage of IRA(interest rate arbitrage)?
There is an interesting atricle about that @ FF:
It suggests that there's a method for consistent, safe profits using IRA & hedging.

Cost & Carry (The "perfect" Hedge)

Now I wonder if any trade here is using a concept like this one?
Yes, I am currently working on something like this. 250% isn't feasible, as mentioned here, but it's still pretty high.
  • #4
  • Nov 6, 2006 12:09pm Nov 6, 2006 12:09pm
Quoting mrmikal
Yes, I am currently working on something like this. 250% isn't feasible, as mentioned here, but it's still pretty high.

Well...interesting, please keep us posted!
  • #5
  • Nov 6, 2006 12:31pm Nov 6, 2006 12:31pm
Quoting tradeigel
Well...interesting, please keep us posted!
Currently trading with the USD/JPY. We have not required a rebalance in a total of 49 days. Our current profit for that period is 8.4%. We are looking to optimize this, but with absolutely no interaction for almost 50 days, it's just as good (if not better) than investing in the stock market.
  • #6
  • Nov 6, 2006 1:57pm Nov 6, 2006 1:57pm
Wow, that's great. Definately beats all the conventional ways of (~safe) investment.
Thank you mrmikal!

Quoting mrmikal
Currently trading with the USD/JPY. We have not required a rebalance in a total of 49 days. Our current profit for that period is 8.4%. We are looking to optimize this, but with absolutely no interaction for almost 50 days, it's just as good (if not better) than investing in the stock market.
  • #7
  • Nov 6, 2006 2:28pm Nov 6, 2006 2:28pm
I did this for a while with GBP/JPY, it worked fabulous. I had a 250k position long earning interest and was "perfectly" hedged in an interest free account (which is no longer interest free) . Was great while it lasted. The 250K position was yielding around $50/day, every day, $150 on Wednesday. Apparently there are some brokers abroad, MA I believe and Fx Trader.net (I think, don't hold me to it) that will set up accts that don't charge rollover. Being here in the US I feel nervous sending my money overseas. Just my 2 cents. Though a bit risky I thought it work to enter a long in the interest bearing direction, ie long GBP/JPY, then set a limit Sell order equivalent to the spread that many pips away to hit after rollover than close the short prior to rollover the following day and re-enter on a limit order after rollover.

So if the spread is 10 pips, enter long @ 224.34 just prior to rollover, then set a limit order hedge sell @ 224.44 right after rollover and you've earned your interest. This pair is so volatile I couldn't see your order not getting filled a measely 10 pips away but who knows. The bottom line is the interest payout on GBP/JPY is approx 2 pips/day, not bad but I've come to realize I can do much better than that trading my own strategies
  • #8
  • Nov 6, 2006 8:30pm Nov 6, 2006 8:30pm
Quoting metamanny
I did this for a while with GBP/JPY, it worked fabulous. I had a 250k position long earning interest and was "perfectly" hedged in an interest free account (which is no longer interest free) . Was great while it lasted. The 250K position was yielding around $50/day, every day, $150 on Wednesday. Apparently there are some brokers abroad, MA I believe and Fx Trader.net (I think, don't hold me to it) that will set up accts that don't charge rollover. Being here in the US I feel nervous sending my money overseas. Just my 2 cents. Though a bit risky I thought it work to enter a long in the interest bearing direction, ie long GBP/JPY, then set a limit Sell order equivalent to the spread that many pips away to hit after rollover than close the short prior to rollover the following day and re-enter on a limit order after rollover.

So if the spread is 10 pips, enter long @ 224.34 just prior to rollover, then set a limit order hedge sell @ 224.44 right after rollover and you've earned your interest. This pair is so volatile I couldn't see your order not getting filled a measely 10 pips away but who knows. The bottom line is the interest payout on GBP/JPY is approx 2 pips/day, not bad but I've come to realize I can do much better than that trading my own strategies
Yes, I have looked into optimization of this method and found that while the GBP/JPY interest rate is excellent, the pair is to volatile to overcome the spread...the method you mentioned (about trying to fill a hedge at break-even) is somewhat counter-productive. Furthermore, the volatility on the pair, makes it somewhat difficult to manage seeing as you'd probably have to rebalance or move money around from account to account fairly often.
  • #9
  • Last Post: Nov 7, 2006 6:29am Nov 7, 2006 6:29am
interesting, metamanny...
It's diffinitely a method to consider trading...
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