how to hedge the carry trade?

this is regarding carry trading. the last time i looked into this i was 17 years old and the USD federal interest rate was something like 5.25 percent. i only dabble in financial reports nowadays so im not sure what the rate is currently at.

i want to take a carry trade, while also taking another trade with a different pair as a hedge.

such as: long GBP/JPY
short USD/JPY

im assuming the interest i would gain by buying the GBPJPY would be greater than the interest i would pay out (if any) by selling the USDJPY.

am i off my rocker here guys?

Although swap rates may vary from broker to broker, at present carry trades involving JPY pairs aren't worth the while as they were in the past...

The only ones I would eventually consider for a carry are AUD-based pairs.

Totally!

Sorry, hit a wrong key!

Put a min. $200K USD in Euro Merchant Bk account where they lend up to 4 X capital. Have MB split the $200K into two loans where it is (example) JPY or CHK where the interest cost avg. is like 2.5% or 3% and the term is 5 years on the loans w/up front origination fee of 1% flat.

Then spread the $600K (w 2.5 or 3 X borrowing, more conservative) into a 8 or 10 part short term (1.5yr-2.5yr) bond investments paying an average of say, 7%. The bonds must be Moody's AAA-A government type. When you pencil the 800K gain of 7% yield is $56,000 and at a 3% "carry cost" on the $600K loan(s) at $18,000 + one time 5 year fee of $6K averaged over the 5 years, use $1,200. So, take $56K less $19.2K = 36.8K/200K = 18.4% ROI.

The average interest on high grade short term bonds is many times avgs a higher yield than 7% example and one can, if conservative and pick well, receive a bonus spiff on the weaker currencies declining against the stronger two (jpy,chk) over the period. And, when the bonds mature one just replaces them with current market short maturities in a perpetual portfolio.

I have several associates who play this game and have for over 20 years.....very, very well! Limiter is the opening anti! Up to last year it was only $100K but the banks won't manage funds with small capital balances anymore. Perfectly legal to do this as long as one reports to IRS as required.

OF course, is the currencies move against you one can have the high yield cut way down.....the risk......but still a very conservative play over the long haul! One cuts the risk by staying very short term in the high grade bond investments. As usual, wealthy people have the advantage in this game.

Cheers

probably so. i get up every day and go to a job i despise. ever seen office space? oh well. if i look at forex factory it looks like im working =]

the goal would be to take 2 trades so i could hedge against the inevitable appreciation of 1 pair and depreciation of the other. in theory i would leave both trades open and one would drift into extreme profit, and the other into extreme loss. i could theoretically avoid a margin call because the unrealized profit and loss would offset each other.

my plan is to never closing the trades and just collect 200 dollars of interest every day from the brokers leverage!! mwahahahaha!!!!

Seriously, hedging one currency pair against another pair is for pansies. Yes, you won't lose any money but you won't make any money either. Grow a pair and pick a direction.

Now get hot on those TPS reports!

For that you would need to have about 50 to 100 lots in play both sides...

This isn't a hedge, it's a synthetic cross. You are in effect going long GBPUSD and paying extra spread for the priveledge. Why not just go long GBPUSD and save the money?

To have an actual hedge you would have to go long GBPUSD and simultaniously short GBPUSD. That would cancel out your trade and make the entire event a pointless waste of transaction costs.

If you want carry interest go long cable and wait for the fed to start rasing rates. With the way Obama is spending money, it'll likely be a good cash generator for a long while.

If you have an mt4 account from forex.com
it gives you +swap for selling chf / jpy

I just buy the aud/jpy
and sell the chf jpy,

very tight correlation, and positive swap on both ends.

I also take profit whenever there is a 20-30 pip profit
opportunity from the fluctuation

good luck

i dont like forex.com. i used them when i first started and if i remember correctly they dont pay swap by adding money to your account, they just change the price you entered the trade.

it all probably ends up being the same in the end, so maybe im just a bit OCD:nerd:

Smart way of thinking

this weak first week of Apr. 2012
there are three news related to interest rates?

Hedging is not easy. If you are new in this market, you need to learn all the tactics of hedging before using it.