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Interest

  • #1
  • First Post: Dec 15, 2005 1:09am Dec 15, 2005 1:09am
I heard that trading currency only for interest differentials can be highly profitable, but also risky. Does any FF members do this, and if so, comment
about it?
  • #2
  • Dec 15, 2005 1:16am Dec 15, 2005 1:16am
Quoting mmills4x
I heard that trading currency only for interest differentials can be highly profitable, but also risky. Does any FF members do this, and if so, comment
about it?
I believe this is what ElectricSavant does in the Cash & Carry system he'll be teaching in the Private Forum when it opens in January.

Dial
sxaxlxvxaxtxixoxnxbxyxgxrxaxcxexdxoxtxoxrxgx
  • #3
  • Dec 15, 2005 6:13am Dec 15, 2005 6:13am
Quoting diallist
I believe this is what ElectricSavant does in the Cash & Carry system he'll be teaching in the Private Forum when it opens in January.

Dial
Personally, I believe the fx mkt adopts different themes at different times, and carry has been a theme this year, though price action over the last few days may leave people scratching their heads. I wrote a piece on interest rate differentials and fx, which may be worth a read. I believe ESavant tries to minimise the correlation risk when buying a high yielding basket, which is wise.

Personally, I think the simplistic view that high r = strong fx has been adopted as the common wisdom and many people could be in for a shock. Still, even thought I am betting on a high yield fallout over the course of 2006, there is no doubt that if you have a directional view on a currency, it is better to get paid for it than to pay out.

: )
"Always bet on black"
  • #4
  • Dec 15, 2005 6:16am Dec 15, 2005 6:16am
Before I appear as a Sir Spamalot, let me apologise for linking to my blog in my posts, but I only do this when I think it may be of use to readers. I am not and will never try to sell a system or anything else for that matter (other than maybe as a joke on April fool's day!).

All of the posts I link to can also be found on the abob fundie's thread in the journal room of FF. (I would link to individual posts on the journal if this was possible).
"Always bet on black"
  • #5
  • Dec 15, 2005 6:41am Dec 15, 2005 6:41am
Abobtrader,

I think fundamental analysis is one of the most dificult fields in forex trading, thus any possible light anyone (in this case yourself) could cast upon the subject should be very welcome.

As far as I am concern, I found your writing very interesting.
  • #6
  • Dec 15, 2005 12:00pm Dec 15, 2005 12:00pm
cheers WTB ... glad to post in an effort to clarify my own thinking and help others.

PS - I visited a few other forums in recent weeks but IMHO none compare to FF ... why is there no Merchandising section with FF caps, FF mugs, FF mousemats, FF T-Shirts etc ??? Loving every minute of it!
"Always bet on black"
  • #7
  • Dec 15, 2005 12:28pm Dec 15, 2005 12:28pm
Quoting WTB
Abobtrader,

I think fundamental analysis is one of the most dificult fields in forex trading, thus any possible light anyone (in this case yourself) could cast upon the subject should be very welcome.

As far as I am concern, I found your writing very interesting.
I totally agree with WTB on this.

Fundies are my weakest area, and I for one appreciate and am in awe of your posts Abob. Keep it up, and thanks!

Dial
sxaxlxvxaxtxixoxnxbxyxgxrxaxcxexdxoxtxoxrxgx
  • #8
  • Dec 15, 2005 12:35pm Dec 15, 2005 12:35pm
Quoting abobtrader
PS - I visited a few other forums in recent weeks but IMHO none compare to FF ... why is there no Merchandising section with FF caps, FF mugs, FF mousemats, FF T-Shirts etc ??? Loving every minute of it!
Oh, you won't be able to access the merchandising section until after you've made your 1000th post. I'm over 900 posts now, but because Merlin granted me admin status, I can see it now. Wait until you get a load of the custom Swiss Army knife made with the FF emblem emblazoned on the side in 24K gold! Nice! And, the pocket watch that chimes each time a new session opens, and plays a dirge when news is not favorable.

Dial
sxaxlxvxaxtxixoxnxbxyxgxrxaxcxexdxoxtxoxrxgx
  • #9
  • Dec 15, 2005 5:08pm Dec 15, 2005 5:08pm
Isn't the idea of this type of trading to hedge currency pairs against one another, minimising the impact of the direction any currency takes; while at the same time having a situation where you are interest positive overall, thus making money from that?

eg

long gbp/jpy

short eur/jpy

movement of both pairs highly correlated over a historical timeframe, opposite sides taken. the higher interest of gbp to that of eur and jpy makes us interest positive overall, so as long as the correlation between the pairs holds, we earn interest all the while with (hopefully) a small and acceptable drawdown. I would imagine it to be better to trade even more pairs and create a very thouroughly hedged basket of currencies.

For much more detailed info, consult the posts of electric savant and others.
  • #10
  • Dec 15, 2005 7:46pm Dec 15, 2005 7:46pm
Noooo, the FF Swiss Army knife and pocket watch. I want them now, but I must be patient. 1000 posts brings nirvana !

Hi, dazw01842. I am going to have to read ESavant's thread in more detail but while I like the idea of a hedged basket I think the reality is not so clear cut. Correlations break down all the time and when 'carry' as a theme falls out of favour, all the high yielders could get hit together (ie their correlations would rise). Also, doesn't being long GBP/JPY and short EUR/JPY just give you a synthetic EUR/GBP position? Lastly, the short EUR/JPY position detracts carry so you have to be sure its worth the trade-off of having a basket less exposed to directional fx risk.

I'm not knocking the idea, these are just thoughts, and it is late so I may be talking baloney. Indeed, I know there are many who try to exploit the UIP theory in the FX world, including the banks, so it can work.

I will read some of ES posts, and eventually get around to writing a carry piece for my blog, which I will of course post here.
"Always bet on black"
  • #11
  • Dec 15, 2005 10:52pm Dec 15, 2005 10:52pm
I've included below an email I got from InterBankFX, since this discussion is about interest. IBFX now pays (and subtracts depending if your long or short) interest on mini lots. Now they also have micro mini lots if anyone is interested. Regarding the interest, as a test, this past wednesday (triple interest day) I opened a long position (1 mini contract) of USDJPY at about 4:45 PM (NY). The interest for USDJPY is about $1.03 per 10K (mini) and on Wed. it's $3.09 . I closed the position 1 minute after 5PM and the interest was promptly credited to my account, along with a few pips profit I made on the trade.

While I'm on the subject, I have noticed an interesting thing regarding USDJPY. Looking back over a couple of month's charts, if you go long USDJPY say around 4:30 PM (NY) every wednesday, USDJPY seems to always rise into 5PM. I would suspect it is because of longs are being put on by traders looking to take advantage of the interest. Then you could hold the position until 5:01 (if your broker has triple interst on Wed.) and earn the interest plus the upward movement in price. This looks like a high probability trade to watch for Wednesday. Take a look at your past charts, and any comments are welcome.

Thanks.

JohnFX
Dear Interbank FX Customers:

We are pleased to announce the addition of Micro Mini lots and the availability for earning SWAP interest fees on all accounts. Effective today, Interbank FX will now provide Micro Mini Lots.Micro Mini Lots allow customers to trade in contract sizes down to one tenth of a mini Lot or a $1,000 contract. The Pip value for a Micro Mini Lot is approximately $0.10. The addition of Micro Mini Lots will allow Interbank FX customers with the ability to transition from their demo accounts to live trading accounts without bearing significant risk while they fine tune their trading skills. Micro Mini Lots are available on both the Interbank FX Trader versions 3.83 and 4.0. To execute a trade for a Micro Lot on your Mini Account, simply enter 0.1 for your lots in the order entry box.Concurrently with the introduction of the Micro Mini Lots, Interbank FX is modifying the SWAP policy for mini accounts. Currently mini accounts are charged the SWAP fee regardless of whether they are long or short the currency pair. Effective today, customers with open positions at 4:59 PM Eastern Standard Time will either earn or pay the SWAP fee exactly like they do in the Standard accounts. Mini accounts will now be able to either earn interest or pay interest from their open positions.
  • #12
  • Dec 16, 2005 12:53am Dec 16, 2005 12:53am
hey johnfx, I definitely have noticed that!!
with the yen.

time to examine this a little further and check it out during demo ...


Ken
Trade what you see, not what you believe.....
  • #13
  • Dec 21, 2005 7:47am Dec 21, 2005 7:47am
Guys;

It looks like because of the Holiday this Monday (markets are closed Monday), today is quadruple interest instead of the usual triple interest (for the brokers who pay such interest). A good way to get the interest rates is right off the FXCM platform.... about all I use their platform for..LOL.

It should be interesting to see how some of the higher interest paying pairs react going into 5:00 PM rollover. Here are some of todays rates per 10k (mini)). This same thing should occur next Wed. with Jan. 2 being a holiday.

USDJPY $5.80 (long)
USDCHF $3.92 (long)
EURJPY $3.75 (long)
GBPCHF $9.00 (long)
GBPJPY $12.60 (long) (WOW!)
NZDJPY $8.22 (long)

JohnFX
  • #14
  • Jan 1, 2006 6:32pm Jan 1, 2006 6:32pm
Quoting JohnFX
Guys;

It looks like because of the Holiday this Monday (markets are closed Monday), today is quadruple interest instead of the usual triple interest (for the brokers who pay such interest). A good way to get the interest rates is right off the FXCM platform.... about all I use their platform for..LOL.

JohnFX
hi JohnFX, do you mean that you can get the actual SWAP rates from the FXCM platform? if so, how?
  • #15
  • Jan 1, 2006 9:56pm Jan 1, 2006 9:56pm
Quoting JohnFX

While I'm on the subject, I have noticed an interesting thing regarding USDJPY. Looking back over a couple of month's charts, if you go long USDJPY say around 4:30 PM (NY) every wednesday, USDJPY seems to always rise into 5PM. I would suspect it is because of longs are being put on by traders looking to take advantage of the interest. Then you could hold the position until 5:01 (if your broker has triple interst on Wed.) and earn the interest plus the upward movement in price. This looks like a high probability trade to watch for Wednesday. Take a look at your past charts, and any comments are welcome.

Thanks.

JohnFX
Hardly surprising considering what the USDJPY has done over the last few months. It has been in a nice uptrend throughout this time. I think you need to be wary about making assumptions on such a short sample interval. I have just run a quick scan on this and have found that in the long term it doesn't work! I will post some back testing results for this idea shortly - looks like the USDCAD might have some potential.

Simon
  • #16
  • Jan 2, 2006 6:21am Jan 2, 2006 6:21am
I agree with Abobtrader that interest differential has been the key factor throughout 2005.

Check out the yearly evolution for EURUSD for instance. Ever since January, when the Fed started hiking up the rates (and thus started to widen up the interest differential with the Euro), the pair has seen quite a defined trend until the end of the year when ECB changed its non-hike policy approach and, furthermore, general consensus agrees that the Fed wont be rising the rates much further.
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  • #17
  • Jan 3, 2006 3:09pm Jan 3, 2006 3:09pm
Quoting DrRock
Hardly surprising considering what the USDJPY has done over the last few months. It has been in a nice uptrend throughout this time. I think you need to be wary about making assumptions on such a short sample interval. I have just run a quick scan on this and have found that in the long term it doesn't work! I will post some back testing results for this idea shortly - looks like the USDCAD might have some potential.

Simon
Ok Simon, thanks for looking into it. I only looked back about 3 months.

Thanks;

JohnFX
  • #18
  • Jan 3, 2006 3:16pm Jan 3, 2006 3:16pm
Quoting mrcooldude
hi JohnFX, do you mean that you can get the actual SWAP rates from the FXCM platform? if so, how?
Yeah;

You have to have the "Dealing Rates" displayed as "simple" instead of "advanced". When it's displayed that way, there is a colume for "IntrS" and "IntrB" with the corresponding interest paid or charged (per/10k lot). "IntrB" means for a buy and "IntrS" means for a short. If the shown rate has a minus sign then its a debit and if no minus sign then the interest is credited. To change the dealing rates window from advanced to simple just rightclick on the window and click "Look & Feel".

JohnFX
  • #19
  • Jan 3, 2006 4:04pm Jan 3, 2006 4:04pm
Quoting diallist
Oh, you won't be able to access the merchandising section until after you've made your 1000th post. I'm over 900 posts now, but because Merlin granted me admin status, I can see it now. Wait until you get a load of the custom Swiss Army knife made with the FF emblem emblazoned on the side in 24K gold! Nice! And, the pocket watch that chimes each time a new session opens, and plays a dirge when news is not favorable.

Dial


LOL!

dial we just shipped you the pocket watch today. abo, you are going to love this stuff! hurry up to 1000 posts!

seriously, if we did have one piece of swag, what would it be? t-shirt? with my pic on it?
Relax and be happy.
  • #20
  • Jan 3, 2006 4:10pm Jan 3, 2006 4:10pm
Quoting abobtrader
Noooo, the FF Swiss Army knife and pocket watch. I want them now, but I must be patient. 1000 posts brings nirvana !

Hi, dazw01842. I am going to have to read ESavant's thread in more detail but while I like the idea of a hedged basket I think the reality is not so clear cut. Correlations break down all the time and when 'carry' as a theme falls out of favour, all the high yielders could get hit together (ie their correlations would rise). Also, doesn't being long GBP/JPY and short EUR/JPY just give you a synthetic EUR/GBP position? Lastly, the short EUR/JPY position detracts carry so you have to be sure its worth the trade-off of having a basket less exposed to directional fx risk.

I'm not knocking the idea, these are just thoughts, and it is late so I may be talking baloney. Indeed, I know there are many who try to exploit the UIP theory in the FX world, including the banks, so it can work.

I will read some of ES posts, and eventually get around to writing a carry piece for my blog, which I will of course post here.
abo, you are going to be pleasantly surprised. what ES has going on is very solid. when he first came on here talking about the cash and carry, i was so impressed that i called him "ed thorp". i put about 8 hours into cash and carry system, but its on hold right now because i had some other research to do. but i did enough to know that the system is very solid. i think i can improve the system using options, but im not done the research. one thing is for sure, you CAN make money just from the rollover, with very little risk.

btw, im surprised a fundies guy like you would be interested in this stuff!
Relax and be happy.
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