The Best Carry trade Pairs? | Forex Factory

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The Best Carry trade Pairs?

  • #1
  • First Post: Jan 4, 2008 11:51pm Jan 4, 2008 11:51pm
Hello,

I'm looking for some help. I've been trading successfully for about 6 months, but I have almost no experience with the carry trade. I thought I understood it but maybe I don't. Let me explain.

As I understand, you want to buy a high interest currency and sell a low interest, like GBP/JPY. So logically it would make sense to pick the pair with the greatest interest differential, right? Well, I thought that was NZD/JPY. But here's what I discovered: when I held a GY position of $80K overnight, I was paid $47.28 the next day. Pretty cool. Then, thinking I had really found a cool thing and wanted to max it out, I held a NZD/JPY position also $80K overnight, but was only paid $8.20 the next day.

Huh??? Obviously I missed something here, but I don't know what it is. There's like a 7% or something differential on NZD/JPY, yet I wasn't paid squat, but on a lower differential (GY), I was paid big time.

Can anyone explain? Sorry if this is obvious stuff to most people, but I really don't understand. I'm not a forex newbie so much as I'm a carry trade newbie.

Any help is appreciated!

Thanks...
  • #2
  • Jan 5, 2008 12:09am Jan 5, 2008 12:09am
  •  w_z
  • | Joined Dec 2007 | Status: hand over them pips | 61 Posts
it usually depends on the broker

dukascopy, for example, charges you swap for holding gbpjpy overnight. yes, charges.

stay away from carry trades right now. if you haven't noticed, gbpjpy dropped 1400 pips in the past 2 weeks
  • #3
  • Jan 5, 2008 12:14am Jan 5, 2008 12:14am
eur/try has even better swap, you got to look at the margin used for each pair to see which pair is more 'worthwhile' like you could get more swap with aud/jpy than gbp/jpy as i can buy more aud/jpy.
  • #4
  • Jan 5, 2008 4:44am Jan 5, 2008 4:44am
Quoting w_z
dukascopy, for example, charges you swap for holding gbpjpy overnight. yes, charges.
You're way off. Dukascopy offers swap rates fairly close to LIBOR. Like other prime brokers, they offset your position's basis rather than pay interest directly (which I prefer for tax advantages). The -3.00 you're seeing for GBP/JPY is -3 pips they offset your basis each day, ex. if you bought at 214 and held past 5pm, your basis is lowered to 213.97.

You may be confused with MBT/EFX. They do in fact charge interest on certain yen pairs. Justin on the EFX thread admitted this was a concession to the banks to offer mini-lots in an ECN environment (which doesn't hold up b/c you can do 25k lots on IB and still get fair rates).
  • #5
  • Jan 5, 2008 4:47am Jan 5, 2008 4:47am
Quoting TC East
Then, thinking I had really found a cool thing and wanted to max it out, I held a NZD/JPY position also $80K overnight, but was only paid $8.20 the next day.
Check your broker's swap rates. Many don't offer a fair rate on NZD positions (MBT/EFX for one, but there are likely many others).
  • #6
  • Jan 5, 2008 1:05pm Jan 5, 2008 1:05pm
Thank you to those who responded.

I think I understand better now, and have now seen some of the different "swap rates" displayed at different brokers. That's probably all I need in determining a best pair for carry trade; I had thought it was just a cut and dry paying of the interest differential and that's it, but apparently brokers can decide how they want to pay it or not.

Thanks again!
  • #7
  • Jan 5, 2008 1:23pm Jan 5, 2008 1:23pm
  •  w_z
  • | Joined Dec 2007 | Status: hand over them pips | 61 Posts
Quoting Trader KGB
You're way off. Dukascopy offers swap rates fairly close to LIBOR. Like other prime brokers, they offset your position's basis rather than pay interest directly (which I prefer for tax advantages). The -3.00 you're seeing for GBP/JPY is -3 pips they offset your basis each day, ex. if you bought at 214 and held past 5pm, your basis is lowered to 213.97.

You may be confused with MBT/EFX. They do in fact charge interest on certain yen pairs. Justin on the EFX thread admitted this was a concession to the banks to offer mini-lots in an ECN environment (which doesn't hold up b/c you can do 25k lots on IB and still get fair rates).

oOOOOOH....ok, thanks for clearing that up. i don't have an account with them. i met someone who told me that they have neg. swap rates. and i checked that page, saw the -3, and believed him
  • #8
  • Jan 5, 2008 3:23pm Jan 5, 2008 3:23pm
It goes beyond the straight interest, it also takes into consideration the relative values of the currency pairs.

This video talks about carry trades within it's content.

http://www.pfxglobal.com/index.php?o...717&Itemid=150

if link fails use:

http://www.pfxglobal.com/index.php?o...=27&Itemid=150

and look for video on "Covered Carry Trades"
  • #9
  • Jan 6, 2008 4:03pm Jan 6, 2008 4:03pm
carry the EURJPY like everyone else... it seems people like to make a lot of money and then very quicly loose it look at Aug15th 2007 most people lost a ton of money that week (credit crisis) and since then its a 50/50 chance you are long or short no one knows if the carry trade is over on EJ or not
good luck I say find a long term trend go with it and add and subtract money all the time never and I mean never just let it ride the entire account out Take Profits Often!!! even if its small profits of of the big runs!

M4X............ Hedging My Way To Profits!
  • #10
  • Jan 6, 2008 4:14pm Jan 6, 2008 4:14pm
  •  w_z
  • | Joined Dec 2007 | Status: hand over them pips | 61 Posts
instead of carry trading, why don't you try hedging

i don't do this myself, but i read it in a thread. long eur/usd and usd/chf at the same time.

since eurusd and usdchf are inversely correlated, you're not really affected by the movements of either pair. All you care about is the interest.


i'm not an expert on this, so check out these threads for more info

http://www.forexfactory.com/showthread.php?t=29981

http://www.forexfactory.com/showthread.php?t=29962

W.
  • #11
  • Jan 6, 2008 4:54pm Jan 6, 2008 4:54pm
I currently use NZD/JPY for carry trading. Didn't enter with the whole desired size yet. Instead I scale in each 200 pips (grid trading / carry trading combined). So far I bought at 86 and 84.
  • #12
  • Jan 7, 2008 8:18am Jan 7, 2008 8:18am
A very interesting pair for carry trade is TRY-JPY.

Volatile, but not too much.

I like it a lot
Greed and impatience are our greatest enemies.
  • #13
  • Jan 8, 2008 4:27am Jan 8, 2008 4:27am
7% per annum!

you have to divide by 365 to get the daily rate.

Maths 101
  • #14
  • Jan 8, 2008 3:28pm Jan 8, 2008 3:28pm
Quoting wobble
7% per annum!

you have to divide by 365 to get the daily rate.

Maths 101
Wobble, I'm not an idiot.

I take it you're a newbie; you obviously know nothing about the carry trade (even less than me), because if you have explored the carry trade even a little bit, or (heaven forbid) traded it for real, you probably wouldn't make such a comment. FYI if you are happening to want to learn, that's not the formula brokers use to pay swap rates.

Newbs 101
  • #15
  • Jan 9, 2008 11:32pm Jan 9, 2008 11:32pm
Quoting TC East
Wobble, I'm not an idiot.

I take it you're a newbie; you obviously know nothing about the carry trade (even less than me), because if you have explored the carry trade even a little bit, or (heaven forbid) traded it for real, you probably wouldn't make such a comment. FYI if you are happening to want to learn, that's not the formula brokers use to pay swap rates.

Newbs 101
Thanks to TC for directing me here...I do hedge trades with fx optoins but since there are few retail brokers that offer combined fx sport and fx options i am stuck with saxo and it's offshoots...it does appear that they charge for holding the NZD/JPY pair notwithstanding the intrest rate differential...i tried to figure out which of the pairs they offer does give the best intrrest but their swap rate page requires some serious math work (at least for me)...if anyone can make heads or tails of it, i would be much obliged....

i can't seem to post the link but it's easily found on saxos website
  • #16
  • Jan 9, 2008 11:57pm Jan 9, 2008 11:57pm
Quoting candaguy2007
it does appear that they charge for holding the NZD/JPY pair notwithstanding the intrest rate differential...
That's not the case. Long positions receive a -1.63pip offset daily according to their table.
  • #17
  • Jan 10, 2008 11:13am Jan 10, 2008 11:13am
Quoting Trader KGB
That's not the case. Long positions receive a -1.63pip offset daily according to their table.
yes, i have raed that too and frankly, I have tried to get some clarification from them about that but nothing ever comes back...here is what is happening to my demo account where I am long the NZD/JPY

Position 30926741: Tomorrow / Next Roll. Position rolled from the 09 Jan 2008 to the 10 Jan 2008. Old price: 83.300, New price: 83.321

Position 30926741: Tomorrow / Next Roll. Position rolled from the 08 Jan 2008 to the 09 Jan 2008. Old price: 83.280, New price: 83.300

The rollover price going forward is heading up, not what I would expect...if I am issing somethng, pleae enlighten me...theo nnly other postion in this account are fx options which do not attract or cost rollover interst
  • #18
  • Jan 10, 2008 11:40am Jan 10, 2008 11:40am
Just a thought...Has any tried trading all the pairs that a broker offers (ex: IBFX) in the direction of receiving daily positive swap starting with .01 of lot for each pair? Here's an indicator you can attach to the charts to determine which side to trade for positive swap. I will start a test run today and report periodically. Can any provide an indicator that would record maximum draw down on the account?
Attached File(s)
File Type: mq4 Market-Value.mq4   3 KB | 687 downloads
  • #19
  • Jan 12, 2008 10:39am Jan 12, 2008 10:39am
Correct me if I'm wrong, but the lot amounts are actually different for NZD/JPY and GBP/JPY.

That would be the reason for the huge difference.

100,000 Great British Pounds is much bigger than 100,000 New Zealand Dollars

Forex 101
  • #20
  • Jan 12, 2008 11:03am Jan 12, 2008 11:03am
Quoting wobble
Correct me if I'm wrong, but the lot amounts are actually different for NZD/JPY and GBP/JPY.

That would be the reason for the huge difference.

100,000 Great British Pounds is much bigger than 100,000 New Zealand Dollars

Forex 101
That is true but my concern was why I was receiving a negative credit to
the oringial spot price on a rollover rather than reducing the base price...
juding from what i read on saxo's page, that is the case for the NZD/JPY pair but I am still not sure
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