Carry Trade [live progress]

Day 1:

We have booked $9.67 in interest. (Can provide the breakdown later)

The portfolio equity is currently down around $700-800 due to short-term fluctuations, but this should straighten out in the long-run.

The focus here would be to earn the interest day in and day out. At its current rate, the interest alone should add up to $9.67 * 367 = 3520 per year, with 9 stand lots open. (Currently that is a margin of around $7500 in US, $1875 in UK. Thats around 50% gain for margin in US, and 100% gain in UK, where max leverage is 1:400 for a reputable broker)

Lets see how it goes

Its interesting to see the shift from JPY based crosses to AUD, NZD and TRY based crosses.

Interesting action during today's NFP

EUR and GBP sell-off against dollar (at least initially as of 9 am), and AUD NZD buying.

Carry is back?

In order to show/analyze the carry trade portfolio, I have magnified the positions by 5x.

So, starting from today, March 8, 2010, the portfolio will generate around $45 per day in interest. (The new positions opened also had a cost, obviously, and brought the equity to $46250. But, again, we are after the interest, and should, in theory, win more than the initial cost associated with setting this portfolio up)

To reiterate, we are after the interest, hence will be carrying high paying currencies, and selling low paying currencies, such as the USD. In order to eliminate/minimize equity fluctuations, also will make arrangements to pairs.

As of today, have gained around $48 in interest. This was with portfolio established last week, with 1.0 Lot per pair. Today, have magnified the positions to 5 Lot, and targeting to earn around $45 * 7 = $315 per week in interest.

Below is the current state of the portfolio:

March 8, US Close

Today was mostly consolidation, as its been mostly directionless in EURUSD since last two weeks.

However, the interests from AUD and TRY look strong

After the rearrangement, today's interest comes in at $48.35.

That corresponds to:

$338.45 per week = $48.35 * 7
$1353.8 per month = $48.35 * 28 (will be higher some months)
$16245.6 per week = $48.35 * 365

So, our first target is to make at least $338.45 this week. The equity might end with higher gains, depending on short term fluctuations, but again, thats not what this portfolio is for. Those short term equity fluctuations (gains/losses) will most likely reverse, and should not have any affect long-term.

Here is the situation at the US Close, Mar 8, '10:

IMPORTANT!

There is the RBNZ meeting on Wed. We will watch the outcome, and if the interest rate is changed at the meeting, will evaluate the portfolio and make necessary changes, as it WILL change the interest income of the portfolio.

Until then, no changes.

I enjoyed all the carry trade strategies of days gone by so good luck with your venture.

Did you say which broker you are using?

The interest rates are derived from CMS.

Despite EUR and GBP weakness, USD doesn't seem to be gaining against much. The main pairs I chose for the carry trade are doing fine.

So, at the end of March 9, 2010, we have booked another $45 in interest. Below is the current status of the portfolio:

The thing about this carry trade portfolio is, in the short term, the rallies of the high paying currencies will reflect as profits, and sell-offs as losses, in the equity.

Please note that this is destined to be lived short-term, and will flatten-out in the longrun. The way portfolio is set is to be net flat in positions.

Equity has jumped to more than 52K as of US Open. We did NOT earn 2000K in interest, yet, so that jump in equity is solely due to the AUD, TRY NZD rally. Again, we are after the interest:

Interest rate stayed constant. No changes to portfolio.

NZD facing a sell-off though

I wonder if you get better interest rates from buying currency futures where possible

did you do any research into these futures and if so what is the difference in interest?

thanks

I actually didn't

Its a good point though. Marked it in notes. If you do get results, please post here.

Regards

Some more info:

So, you could be wondering, why the equity is negative, even its been around 2 weeks now?

Well, the answer is simple: The initial setup cost.

At the time of buying/selling each pair, we had to pay spread. At the time of the start of this portfolio, we have paid: $6101 in spreads.

Aiming for $16K+ ($16245.6 to be exact) in interest, the portfolio has a whopping %266.28 percent return in one year (at least in theory, until we have the cash in the bank, eh? )

Well, you may ask, again, why then the portfolio value even went up to $52K the other day? As I mentioned earlier, the sudden movements in the currency markets take a couple of days to flatten out. Thats why. Any gains/losses, purely due to an appreciation or depreciation of a pair in value should cancel out in the long-run.

So, looking at this calculation:

Initial Cost = $6101
Interest earned per week = $338.45
Week the portfolio would be flat = 18

So, we should expect the portfolio to be flat in value in week 18. Thats, around 2nd week of August. And after that, we will cash in $338.45 in interest.

Lets discuss any drawbacks, ideas, in the road to the carry portfolio.

Regards