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Currency Futures and Interest

  • #1
  • First Post: Nov 18, 2006 11:55am Nov 18, 2006 11:55am
I just recently found out that there is no interest payment on positions held in the futures market. This isnt so when speaking of spot fx. So my question is .. has anyone hedged a position in the futures market with a position in the spot FX market? Example would be short contract of gbp/jpy in futures and long gbp/jpy in spot. When the you reach settlement date for the future, close both positions at the same time, lose the spread, though you made interest about .00013% interest per day on your position. Now obviously there can be difference in movement, though not much.

This is obviously not a "trading" strategy, so it wont interest many individuals, though if I understand it right it is an investement, because of the leverage. I wouldnt mind placing a fair 60% into a leveraged position to make up for all my BAD trades .

Could someone fill me in as to whether they have attempted this? Am I missing something?

Thanks,
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #2
  • Nov 18, 2006 12:55pm Nov 18, 2006 12:55pm
  •  iya
  • | Joined Oct 2006 | Status: always protect yourself | 129 Posts
I think the main problem is still the same as with using two accounts on two different brokers: depending on your position size you have to shuffle around the money between the two accounts. I forgot the details, but somebody did the math and it didn't turn out to well: around +12% p.a. in the worst case.

And a point about the futures: don't they expire every month?
  • #3
  • Nov 18, 2006 1:30pm Nov 18, 2006 1:30pm
Quoting iya
I think the main problem is still the same as with using two accounts on two different brokers: depending on your position size you have to shuffle around the money between the two accounts. I forgot the details, but somebody did the math and it didn't turn out to well: around +12% p.a. in the worst case.

And a point about the futures: don't they expire every month?
Iya, forex brokers will not allow you to hold a short gbp/jpy for any extended period of time without paying interest.

Yes, I would change the position every month. With gbp/jpy it will take a week and around 3 days to make up the cost. upper 2 to 3 weeks roughly would be profit on the position.

What do you mean by 12% p.a.?
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #4
  • Nov 18, 2006 1:48pm Nov 18, 2006 1:48pm
actually you can use cmsfx and request no interest account, they do that, so short with them, then use fxsol for example, or other broker for the long, that way you never have to close, someone told me they did the math, and you get about 80% per year, my only thing is i guess if we get in a huge downtrend, which is unlikely with the beast, the short account might get a margin call, i guess if that happened just close the long as well and you end up with more money between the two account then started with so should be good, i want to do this, but im just a little scared.
  • #5
  • Nov 18, 2006 1:59pm Nov 18, 2006 1:59pm
Quoting stricko108
actually you can use cmsfx and request no interest account, they do that, so short with them, then use fxsol for example, or other broker for the long, that way you never have to close, someone told me they did the math, and you get about 80% per year, my only thing is i guess if we get in a huge downtrend, which is unlikely with the beast, the short account might get a margin call, i guess if that happened just close the long as well and you end up with more money between the two account then started with so should be good, i want to do this, but im just a little scared.
Stricko, interest free accounts are for Muslims. Muslims dont earn or pay interest often times because of their beliefs. Unless I have been told wrong, NO forex broker will allow a trader to hold a long term trade carry trade in a short position. They will close your position themselves, or close your account.

Anyone know something I dont?

I am assuming I was told correctly that brokers will figure out you are pulling a fast one on them. That is why I am trying to get info on futures. Though the % change may be exactly enough between the two to not allow the trading I am speaking of.

6month future change for gbp/jpy is 7.5%, spot is 5.5%.
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #6
  • Dec 11, 2006 11:24am Dec 11, 2006 11:24am
Quoting StockKJay
NO forex broker will allow a trader to hold a long term trade carry trade in a short position. They will close your position themselves, or close your account.

Anyone know something I dont?

I am assuming I was told correctly that brokers will figure out you are pulling a fast one on them.
WHAT? Is it legal at all? Its a fricking stealing! Dont they allure you with claims that you can trade as you wish?
So, basically you are ending up with options of sucking it up or going thousands of miles away to sue them? Can you sue them from your state at least?
  • #7
  • Dec 22, 2006 10:31am Dec 22, 2006 10:31am
Quoting StockKJay
So my question is .. has anyone hedged a position in the futures market with a position in the spot FX market? Example would be short contract of gbp/jpy in futures and long gbp/jpy in spot.
One of the best ideas I've ever read here. Almost like a licence to print money. I'm really surprised that people don't seem to be interested.
  • #8
  • Jan 1, 2007 11:10am Jan 1, 2007 11:10am
All the time. The problem with futures is there are a thousand ways to get screwed especially if you're a small trader. Try getting you fill from a broker in a "fast market". It could be a hour before you find out that you stuck 50 pips. Banks and trading desks use futures once in a while to hedge their book or get get off some part of a trade for reasons that are to long to explain. As far as making interest money off a Forex of futures account, there's so much money to be made with good trading, why take the low road.
  • #9
  • Jan 1, 2007 1:50pm Jan 1, 2007 1:50pm
There was a previous thread entitled "carry tradinng, The Holy Grail" that looked at the possibility of hedging an interest paying and non interest paying forex account. Within that discussion some members were discussing the strategy you raised, that is hedging a forex account with forex futures. While I have not looked into it personally one member said it seemed not worthwhile as the futures already take into account the interest. The link to that thread is
http://www.forexfactory.com/forexfor...ght=holy+grail

keep us posted

mike
Taking Life One Pip At A Time I officially have my own opinion.
  • #10
  • Jan 1, 2007 2:06pm Jan 1, 2007 2:06pm
Quoting MikeC
There was a previous thread entitled "carry tradinng, The Holy Grail" that looked at the possibility of hedging an interest paying and non interest paying forex account. Within that discussion some members were discussing the strategy you raised, that is hedging a forex account with forex futures. While I have not looked into it personally one member said it seemed not worthwhile as the futures already take into account the interest. The link to that thread is
http://www.forexfactory.com/forexfor...ght=holy+grail

keep us posted

mike
Exactly, the difference in the future and spot price is the interest, that is why at settlement they are both worth the same
  • #11
  • Jan 1, 2007 2:24pm Jan 1, 2007 2:24pm
Quoting MikeC
There was a previous thread entitled "carry tradinng, The Holy Grail" that looked at the possibility of hedging an interest paying and non interest paying forex account. Within that discussion some members were discussing the strategy you raised, that is hedging a forex account with forex futures. While I have not looked into it personally one member said it seemed not worthwhile as the futures already take into account the interest. The link to that thread is
http://www.forexfactory.com/forexfor...ght=holy+grail

keep us posted

mike
Yes, this is true. The % difference is nearly exactly what would be earned through interest. Futures will overperform or underperform just enough to bring your position on spot fx to BE.
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #12
  • Last Post: Jan 2, 2007 6:17pm Jan 2, 2007 6:17pm
Quoting StockKJay
Yes, this is true. The % difference is nearly exactly what would be earned through interest. Futures will overperform or underperform just enough to bring your position on spot fx to BE.
In addition though since you are interested in this type of trading, it might be worthwhile reading the thread i posted. It does discuss the hedging of interest paying and non interest paying accounts. It draws some criticism. The main factors are how often will you get a margin call on the losing account, reliable brokers, specifically one that will allow you to carry a negative interest account. Some member say they will not. While I have not tried it, I don't see how they cannot. Take for example if you are sold the gbp/jpy and you are riding a trend in your favour. How can a (non interest paying) broker say you cannot continue holding a position that is profitable. I'm not sure but I intend to look into it.

Mike.
Taking Life One Pip At A Time I officially have my own opinion.
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