Let's talk carry trading... | Forex Factory

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Let's talk carry trading...

  • #1
  • First Post: Oct 21, 2008 10:50pm Oct 21, 2008 10:50pm
You mention carry trading to anybody these days and they will laugh at you but the fact is that many of the JPY crosses are approaching firesale level not seen in almost a decade. It would be too soon to start timing an entry but it is certainly time to start thinking about a possible strategy.

While equities could possibly continue to slump for the next 8 years, it is very possible for the JPY crosses to resume their rise. However, implied volatility must drop and the equity correlation must lowly decouple over time.

Thoughts?
  • #2
  • Oct 12, 2009 12:04pm Oct 12, 2009 12:04pm
Hi - was just reading with interest the concept of carry trading and I have question - where and how are people able to borrow sufficient in the one currency to conduct carry trade in another currency? I'm not personally aware of any bank that is willing to lend a sufficient amount of cash (ie, not mortgage, credit card etc etc) for someone to effectively take advantage of interest rate differentials. And even if such liquidity is available, I'd be surprised if the interest rates on such loans would not be higher than the target currency.
  • #3
  • Oct 12, 2009 12:36pm Oct 12, 2009 12:36pm
Quoting kwcmau
Hi - was just reading with interest the concept of carry trading and I have question - where and how are people able to borrow sufficient in the one currency to conduct carry trade in another currency? I'm not personally aware of any bank that is willing to lend a sufficient amount of cash (ie, not mortgage, credit card etc etc) for someone to effectively take advantage of interest rate differentials. And even if such liquidity is available, I'd be surprised if the interest rates on such loans would not be higher than the target currency.
Just go long in the AUD/JPY. If you use leverage, you'll automatically "lend" some money. The daily swaps are the "carry interest payments".
  • #4
  • Oct 12, 2009 5:20pm Oct 12, 2009 5:20pm
Quoting kwcmau
Hi - was just reading with interest the concept of carry trading and I have question - where and how are people able to borrow sufficient in the one currency to conduct carry trade in another currency? I'm not personally aware of any bank that is willing to lend a sufficient amount of cash (ie, not mortgage, credit card etc etc) for someone to effectively take advantage of interest rate differentials. And even if such liquidity is available, I'd be surprised if the interest rates on such loans would not be higher than the target currency.
If you enter a position, brokers generally lend from one (central) bank, and borrow it to the other. Of course there are many different types of brokers, but to understand the concept of a carry trade you should just look at it this way. The interest rate differential of the central banks (minus a fee) is added or subtracted daily from your trading account.
The nail that sticks out gets hammered back in
  • #5
  • Oct 12, 2009 7:24pm Oct 12, 2009 7:24pm
I don't know thats it's too early. The markets are forward looking and by the time your listed criteria are met, the trade will likely be well on it's way. Now may just be the perfect time to start building a long term position.
  • #6
  • Last Post: Oct 12, 2009 7:55pm Oct 12, 2009 7:55pm
I suppose the interest swap will very much depend on your broker giving you a fair deal.

which broker would give you the most interest?
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