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Warning to Carry Traders (Perfect Hedge)

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  • First Post: Jan 14, 2006 12:37am Jan 14, 2006 12:37am
I have been following ElectricSavant's carry trade (perfect Hedge) here in the public forum since it was posted. I just came across what seems to be a discussion on this same strategy on Oanda's message board. A poster claims he also did the strategy but was "caught" and forced to shut down. Please read the details here:

http://www2.oanda.com/cgi-bin/msgboa...6;t=005275;p=3

I am not a member of the PF yet but have considered doing this strategy also. Now i'm not sure. Can someone who is verify if this can be done safely?

Thanks in advance
Quoting pabad
I have been following ElectricSavant's carry trade (perfect Hedge) here in the public forum since it was posted. I just came across what seems to be a discussion on this same strategy on Oanda's message board. A poster claims he also did the strategy but was "caught" and forced to shut down. Please read the details here:

http://www2.oanda.com/cgi-bin/msgboa...6;t=005275;p=3

I am not a member of the PF yet but have considered doing this strategy also. Now i'm not sure. Can someone who is verify if this can be done safely?

Thanks in advance
Forex brokers don't allow traders do interest arbitrage. They can inspect and catch u easily.
Quoting pabad
I have been following ElectricSavant's carry trade
The thread you have reported is on "interests arbitrage" not standard carry trading (as the ES's one is an example)!
Quoting Croesus
The thread you have reported is on "interests arbitrage" not standard carry trading (as the ES's one is an example)!
Croesus I was referring to Cash and Carry Perfect Hedge not Standard Cash and Carry or "interest Arbitrage". Here is the beginning of the thread at Oanda:

The key is to be hedged on a carry trade position while collecting interest.

Open an account at Oanda and another at either FXCM or Marketiva and opt for the "No Interest Account"; meaning your open positions will not collect or get charged interest. Next go long a high paying interest pair such as AUD/JPY at Oanda and short the same amount of AUD/JPY in the "No Interest Account". You will now be hedged minus the difference in the spread. When you get close to a margin call in either account close both long and short positions, move funds around, and re-open the long and short positions.

Hopefully the next time you open the positions you will have collected enough interest to open bigger positions therefore collecting more interest and harness the power of compounding.

Since the funds are with two different accounts it wiil take some time to move the appropiate amounts and reset. Therefore you will want to have enough backup money in both accounts to avoid having to close the positions and reset.

Comments?...................

Isn't this the same as discussed by ElectricSavant which was called Cash and Carry Perfect Hedge in an older thread here in the public forum? :

Originally Posted by ElectricSavant
Folks and TradeVestor's

I just mailed a check for $2,500.00 to Oanda and $2,500.00 to FXCM.

The name of the Journal in the Private Forum is Cash & Carry (The "Perfect" Hedge)

You are welcome to check in anytime to see the progress. I truly hope to see you there.

I have another Journal named Cash & Carry (Exotic) but I am trading it in the Simulator as all my funds will trade the Perfect Hedge to quickley take advantage of this while it's available.

I must tell you that opportunities like this are far and few between. and just imagine.... that you read it here in the Forex Factory in an open anonymous forum!...can it be true?

I have been trading for 28 years and I cannot remember such an opportunity presenting itself. There was once some sweet arbitrage opportunities in Futures that I might have exploited, but its only once or twice in your trading career that you get such opportunities. These opportunities are NEVER shared. I really do not imagine that half of you understand what this is and what is being suggested here. Newbies, you do not know how fortunate you are if you have read this thread and understand what a "Perfect" Hedge is.

Actually the responsible thing to do is to cherish this information and to use it responsibly. You are profiting from a loop hole that will be closed and the public illustration of this may even close the loophole faster. Perhaps the responsible thing to do it to erase this thread...but I will leave that up to the moderator and I will not do it. If somebody were to say to you here...I want to give you one million dollars, but you must not tell anybody, because I will not give you anymore. but if you can keep your mouth shut, I will give you 1 million every month. Essentially that is the case here...let's not get this loophole closed prematurly.

Michael B.
P.S. I had a trader associate of mine check the quotes on FXCM and compare them to Oanda, and they are close....very close!

P.P.S. The correct thing also to do here, is to let your dealer/marketmaker have some money from you...please reset often and give him some spread sometimes. They are in business to make money, so allow them to have some, Do not get greedy and your resets will balance your hedge and you can start again.
Quoting pabad
I have been following ElectricSavant's carry trade (perfect Hedge) here in the public forum since it was posted. I just came across what seems to be a discussion on this same strategy on Oanda's message board. A poster claims he also did the strategy but was "caught" and forced to shut down. Please read the details here:

http://www2.oanda.com/cgi-bin/msgboa...6;t=005275;p=3

I am not a member of the PF yet but have considered doing this strategy also. Now i'm not sure. Can someone who is verify if this can be done safely?

Thanks in advance
I read that post at Oanda and have to wonder. What does the guy mean by "get caught". The broker tied up his money and he had trouble getting it back with legal issues? What did he do wrong? What was illegal about his hedge?
If a broker can do this then Forex is really the wild west.
SJ
Quoting pabad
Croesus I was referring to Cash and Carry Perfect Hedge not Standard Cash and Carry or "interest Arbitrage". Here is the beginning of the thread at Oanda:
mmmmm... ok, my mistake!
I don't think retail traders might be able to fool market makers or brokers for a long time...The case we are talking about in here is to cause damage to both market makers, you force one of them to pay interest because you are long the currency with the higher interest rate, and at the same time short this currency with the higher interest rate with another market maker but not charged...Although FXCM know that they are not going to charge you interest, but they also know that they are not going to give you any interest...You are simply manipulating the system, and the market makers won't let it just pass on, or else, everyone will win handsome amounts of money out of their pockets...

Forget about it guys, even if there is nothing illegal with it, they will find out something to make it illegal and prevent it in the future, probably when you get caught with such a situation...


Thanks,

Nader
Quoting phildunn
Forex brokers don't allow traders do interest arbitrage. They can inspect and catch u easily.
Will brokers withdraw non interest bearing accounts? I doubt it.Let’s just think about how a broker manages their risk exposure. The broker will always attempt to achieve a neutral position. They’ll bucket any trades they can and when they see a significant imbalance they’ll hedge their position.OK let’s assume that the whole retail spot forex trading community try this little interest arbitrage trick. Instead of 50% of FXCM’s customers being long, and 50% being short everyone’s taking long trades as perfect hedges against interest bearing shorts at OandaWhat can FXCM do in this situation, they are forced to take a hedge short, and of course they earn interest, which they get to keep.So they get the spread, they get to earn and retain the interest. They also get to play with your real money whilst you play with virtual money inside the bucket shop. Added to which a sizable percentage of new traders will totally fail to manage positions correctly, or possess insufficient funds to trade the method safely. Why wouldn’t a broker want this type of business?
Anyone ever trade the US dollar index USDX on the NYBOT? Could be a way to hedge an interest-bearing US dollar denominated forex pair.


JohnFX
why cant you just buy the USDJPY and buy yen futures to offset? futures dont have rollover, so isnt this "the perfect hedge"?
Relax and be happy.
The futures value has the interest factored into the price so you will be paying it anyway.

Simon
Is this a feasible, realistic method of trading to capture daily interest?

Is there a more balanced approach that could be done solely at Oanda so that FXCM and the religious-belief waiver, etc. don't come into play?

Either way, I'm very interested ... It's one of the few, "non-trader" systems that I can understand, and I really am confused over traditional methods of spotting trends, etc.

Please let me know, as I'd really like to learn more!

Cet.
I think I've mentioned before that IMO, the USDJPY(long) is the best pair to try and take of advantage of rollover interest. This is especially true on wednesday's when interbankFX (and some of the other brokers) pay triple interest, which would be $3.10 per min lot. Also, the spread is much tighter on USDJPY than some of the other JPY crosses. With IBFX you only have to have the position opened before 4:59 PM (EST), then you can close it a couple minutes after 5:00 PM (EST) if you just want to earn the interest. The question is: what is the best way to hedge in order to protect the downside if one wants to hold the position further into the asian session or even longer term?

Thanks;

JohnFX
John,

The interest that you earn wouldn't even pay for the spread. It takes about 1 day of interest to pay 1 pip. The spread is 4-8 pips depending on your broker so it won't work.

Simon
Quoting DrRock
John,

The interest that you earn wouldn't even pay for the spread. It takes about 1 day of interest to pay 1 pip. The spread is 4-8 pips depending on your broker so it won't work.

Simon
Simon;

Just a thought. This interest thing really isn't something I'm actively racking my brain about. You may want to check out my thread. That's where my efforts are being concentrated. By the way, IBFX has a 3 pip spread for usdjpy and FXDD has a 2 pip spread. Oanda may even be tighter .

John
Hi everyone, this is a very interresting scenario. Pretty genius to earn interest on margin money? (is this the basic principle that we're talking about here?). I have thought about doing this, but not b/c of the interest but I wanted to go long and short on a pair just to make money on breakouts. But everytime I try to buy and sell a pair, they end up closing each other out and im stuck paying the pip spread. I am on a demo account... if that helps answer any questions.

Thanks in advance
oh yeah I forgot to mention, I'd put stop losses on both positions too.
Thanks.
Quoting rchurro
Hi everyone, this is a very interresting scenario. Pretty genius to earn interest on margin money? (is this the basic principle that we're talking about here?). I have thought about doing this, but not b/c of the interest but I wanted to go long and short on a pair just to make money on breakouts. But everytime I try to buy and sell a pair, they end up closing each other out and im stuck paying the pip spread. I am on a demo account... if that helps answer any questions.

Thanks in advance
Which broker u use?
hello phildunn,

thanks for responding, sorry im not sure if there is a broker, im not really technical savvy,

This is where I login
http://www.fxtrade.com/fxgame/
it's just a free demo I signed up for at oanda I think.

Thanks again,
How does they know that you are trying to hedge for swaps? Is there a central computer that will catch the operations from some people or maybe brokers are sitting in the forums and read?
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