Carry Trade [live progress]

Fellow FFers,

First of all, congrats for creating such a community, thanks everyone that participates to make this community even better.

Now...

The big question and "unknown" of the modern fx and financial world: CARRY TRADE!

Everyone is saying smthg; it can't be done, if it was profitable why everyone is not doing it, you will LOSE all your capital if carry trade unwinds etc.

I started a PROGRESS account (demo, NOT real $) to see what the actual FACT would be.

The account is started on May 16 th at 12:00 pm EST. Originally 5000 $ invested. Below are the positions taken:

Long GBP/JPY Long USD/JPY Short GBP/USD Short CHF/JPY Short CAD/JPY Short USD/CAD Short USD/CHF

I will be updating DAILY how this carry trade account is performing.

Comments along the way would make this journey very enjoyable and fun to read/debatei I believe.

Off we go with a great start:

Day 1:

Balance: 5406.09
Change: +406.09

Interest Earning: 49.17
Carry Trade Earning: 356.92

Thats a whopping 8.12% from 5K we started with. (margin used to hold the trades is 3300 $. That would make 12.31% increase from margin we put in)

Just curious, are you using 1 position on each of these pairs?

David

Roller,
Good work!
What leverage are you using and how does it affect your interest earned?

This is not carry trade when you Short GBP/USD, Short CHF/JPY , Short CAD/JPY, Short USD/CAD, Short USD/CHF.

You're right. It's called carry basket or something like that right? Or is it basket carry trade? I dunno...

But hey ... good combo though Roller, keep us inform.

Take it from a newbie type person who lost her whole first 3 mo of profit on carry trade unwinds:

The unwinds affect the whole market:

They tend to artificially de-value EUR, GBP, and NZD -- because they are the main carry traders. They will go backwards BIGTIME! Exception: GBP/CHF and MAYBE EUR/CHF.

Unwinds tend to artificially raise USD values, so if USD is up it will even cause a buy of USD/JPY. IF USD is down -- like now -- not so much.

Last time there was a BIG Carry trade unwind was BEFORE the BOJ interest rates went up.

I hedged, and shorted all the yen crosses -- and they dropped like rocks the whole time, so I made 100 to 200% profit on each. My long trades went down, too, but I tend to think that A TRADE THAT GOES BACKWORDS REALLY FAST RETURNS TENDS TO CORRECT REALLY FAST, TOO -- so I allowed for a BIG drawdown, which was off-set by my hedges.

Dollar was sort of up at that time, so I actually made 15 pips per day on USD/JPY.

NZD/USD was a nightmare. (Hope you aren't stuck in that now!) Because it could be worse that any Yen cross -- as, right now, it is seriously over bought.

GBP/USD actually went down faster than the yen crosses, so I sold some of that, too.

EUR/USD does not usually go to such extremes, so I didn't bother. If I had been long on that one, I might have hedged. If you are -- just give a big draw down, and HOLD ON TIGHT!

I actually made 15 pips per day going long on GBP/CHF -- who knows why?

After the nightmare ended -- my philosphy kicked in -- re: A TRADE THAT GOES BACKWORDS REALLY FAST RETURNS TENDS TO CORRECT REALLY FAST, TOO --- so all those trades that I had allowed a big draw down on came back -- so I got my pips and profit back on them,too. I had already collected my profits from the hedges -- so I made new trades that went long on whatever drew down the most, while they slowly turned green: like GBP/JPY, EUR/JPY, or NZD/USD, EUR/JPY, GBP/JPY . I started them as soon as the charts started the uptakes, and stayed long until my original long trades completed. Some of the trades I CHANNELED up, based on best times of day to trade -- so I actually made MORE than my draw downs.

I'm kind of a newbie, myself, and had lost my shirt (don't get excited, fellas!) on Jan 4-8 because I had NO idea what the carry trade was. At that time I was leveraging 10% per trade of my account. By Feb I had been advised that 3% was more like it. But, using this method, I made back EVERYTHING I had lost on the Jan 4 correction using a much smaller and SAFER leverage (of 3%) in less time than it had taken to make it originally.

As I said, I AM a newbie -- so one thing I wonder about is -- How big will market reversals be since interests rates have been raised?

I think it will be a LOT flatter -- but maybe NOT! Prior to the BOJ interest statement I had predicted this:

They won't raise interest rates -- but a market correction will surprise lotsa folks about 2 days later. How big will that be -- I don't know!

I plan to just hold on and see before going against the trends -- and then take it easy! If it's flat I'm not hedging anything.

If you think the rest of my advice sux, ok, but just remember -- carry trade unwinds DO turn the market around.

lots taken are adjusted according to pip values of each pair, to minimize fluctuations that would be caused by fast market movement.

Could you give an example of your math for doing this.
Math is one of my many weak points

Day 2:

Balance: 5099

Interest Earning: 65,56
Carry Trade Earning: 33,44

TraderGurl,

Just a note of correction, the last carry trade unwind was technically in February a while AFTER the BoJ raised interest rates, I believe. However, it would seem that it was a very temporary unwind.

Day 3:

Balance: 5566

Interest Earning: 81,95
Carry Trade Earning: 484,61

Day 4:

Started with 5000
margin used 3300


Balance: 5559,48

Interest Earning: 98,34
Carry Trade Earning: 461,14



Interest earned in 4 days reached 100$, with only 3300$ margins used. Thats 3% interest in 4 days, which is 3/4*30*12=270% per year.

will be posting some detailed screen shots, including detailed profits/losses from each pair carried

I would like to see these. sounds interesting.

First of all, here is an intermediary update (hence day 4.5 )

Day 4.5:

Started with 5000
margin used 3300


Balance: 5746,48

Interest Earning: 98,34
Carry Trade Earning: 648,14


I will try to post screen shots to droll spectators...

Here is the status of the account as of May 22nd, 2007, 4 pm EST:

And here is the detailed status of each currency pair used in the carry trade account:

Beware of the 5700$ + account. The REAL value of the account is the BALANCE! That is, the starting amount + the interest earned. Other amount is actually there because of JPY losing value. However, it is most likely to dissappear long term, in theory.

Interesting thread. I hope you continue it long term.

Thanks, I was not too interested in your P & L statement but in the mechanics in this screen shot.. this is nice, thanks for posting it