Carry Trade with Hedging

New to carry trade, but this seems too easy to be true..., please comment on the following Carry Trade :


1. Long Highest yielding pair . ( AUDJPY)

2 To avoid exchange rate swings....Hedge with Highly Correlated pair offering lower yielding interest ( CADJPY)

thats it.

or is it ???????

profitable carry trading needs either a lot of capital, or a lot of leverage. The leverage option is dangerous as only a small move away from your entry can wipe out your entire account. So no, its not easy.

It's not that easy, firstly the /JPY pairs tend to move with each other so being long AUD/JPY and CAD/JPY would be a double whammy when the market goes south. Also, the /JPY pairs experience a lot of volatility and have rapid movements up and down. It would be much better to learn how the markets work, and read some of the threads from the more accomplished traders here.

It does seem possible, and it's a strategy that I am testing too.

We need to keep the position size very very small and every time AUDJPY falls by 200 pips then buy again (and short CADJPY again).

The risk is when the correlation between the two currencies changes. If AUDJPY keeps falling and CADJPY does not fall enough, then we might get a margin call.

But if we keep the position size very very small and remain patient, it might work out.

Thank you Darren for your response,,,,

I could not find any other currency pair to hedge against risk of devaluating aud against cad. and the only thing I could came up with is to increase the lot size for the cad ; Example :

Buy : AUDJPY - 10 LOTS
Sell : CADJPY - 11 LOTS or so ...


??????? how long have you spend working out this trade idea ???

I have been trading this way for less than a month. When I see that I have unrealized profit, I close all positions and start again.

Yes, I think the only way is to increase the position size of CAD when AUD devalues against it.

howz ur trade going now ??

Right now the risk on/risk off dynamic means you may want to focus on that till the markets stabilize a bit before looking into a carry.

Instead of hedging to minimize risk, consider closing half the position at 1R and letting the rest ride, adding along the way. Its great because you have a free trade while your stop is out of the way.

Also don't keep your stops at obvious places or you will get picked off