Carry/Basket Trade Idea | Forex Factory

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Carry/Basket Trade Idea

  • #1
  • First Post: Feb 11, 2014 9:06am Feb 11, 2014 9:06am
I recently became interested in the carry trade and realized that it involved a high level of risk, so I decided to try to find a combination of pairs that would decrease the risk while maintaining a high interest rate. The two best I came up with were long NZD/USD and short USD/MXN, the USD going in opposite directions minimizes the losses because they move at different rates and in the opposite direction. When I made the trade I realized that there are many times during the week where they become profitable as a pair, I just picked up over 2% a few minutes ago and have already made over 6% this week, the only problem is I never know when these profit points will occur. Here is how I do it.
I buy NZD/USD and Sell USD/MXN using 25% of my margin for each, then look for a profit of more than 1% then close both trades and immediately reopen them increasing the lot size using the additional margin. Would it be possible to make an EA that would do it automatically allowing me to choose one pair to buy and one pair to sell and the % gain to close both pairs and reopen the trade.
  • #2
  • Feb 11, 2014 11:34pm Feb 11, 2014 11:34pm
Quoting jaws810
I recently became interested in the carry trade and realized that it involved a high level of risk, so I decided to try to find a combination of pairs that would decrease the risk while maintaining a high interest rate. The two best I came up with were long NZD/USD and short USD/MXN, the USD going in opposite directions minimizes the losses because they move at different rates and in the opposite direction. When I made the trade I realized that there are many times during the week where they become profitable as a pair, I just picked up over 2%...
why close and reopen, why not just increase the position size to account for the extra margin available? it would be cheaper
  • #3
  • Feb 12, 2014 1:06am Feb 12, 2014 1:06am
Hi Jaws
I have tried this trading indices against each other, at some points it goes into big negatives so you would need a large account, eventually in comes back into profit.

Are you buying and selling at the same levels, £1 buy and £1 sell?
Plan, Patience, Profit
  • #4
  • Feb 12, 2014 3:44am Feb 12, 2014 3:44am
Quoting sugarman
Hi Jaws I have tried this trading indices against each other, at some points it goes into big negatives so you would need a large account, eventually in comes back into profit. Are you buying and selling at the same levels, £1 buy and £1 sell?
I use my margin to determine how much of each pair to buy and sell, I use OandA and their platform lets me automatically set trade size to a % of Net Asset Value so I set it to 25% NAV and the trade size is set for me. I use the same amount of margin for both trades so the actual trade size is different, so on a $10,000 account, the trade sizes would be 1.5 NZD/USD long and .5 USD/MXN short using $5000 margin. I expected the large negatives which is why I'm not using all of my margin.

Quoting MaxDoom
why close and reopen, why not just increase the position size to account for the extra margin available? it would be cheaper
I would do that with accumulated interest when the trade is in the negatives, but when it goes positive I want to bank the profits before it goes negative again taking the profit with it, which could happen within a few hours. Positive pips are not profits until the trade is closed, so increasing trade size without banking the profits will increase risk and margin used without increasing my account balance.
  • #5
  • Feb 12, 2014 3:58am Feb 12, 2014 3:58am
What`s your spread on USD/MXN with OandA?

USD/MXN is 16 times the size of NZD/USD, sounds like your ratio is too small.
Plan, Patience, Profit
  • #6
  • Feb 12, 2014 5:07am Feb 12, 2014 5:07am
Quoting jaws810
I recently became interested in the carry trade and realized that it involved a high level of risk, so I decided to try to find a combination of pairs that would decrease the risk while maintaining a high interest rate. The two best I came up with were long NZD/USD and short USD/MXN, the USD going in opposite directions minimizes the losses because they move at different rates and in the opposite direction. When I made the trade I realized that there are many times during the week where they become profitable as a pair, I just picked up over 2%...

when you buy nzd/usd you are selling usd and when you sell usd/mxn you are again selling usd, so how do you get the advantage of usd going in opposite directions?
  • #7
  • Feb 12, 2014 10:42am Feb 12, 2014 10:42am
Quoting sugarman
What`s your spread on USD/MXN with OandA? USD/MXN is 16 times the size of NZD/USD, sounds like your ratio is too small.
ATM my spread is between 50& 60 but the daily range is around 9000, not really sure about the ratio.

Quoting Farizu
when you buy nzd/usd you are selling usd and when you sell usd/mxn you are again selling usd, so how do you get the advantage of usd going in opposite directions?.
Huh, I can't believe I missed that, I guess this has been working so well because the USD has been weakening or it could be that the MXN & NZD react to the market differently because I have profits and losses on both sides. Either way after taking profits I should probably wait to make new trades until the USD strengthens a bit.
  • #8
  • Feb 12, 2014 11:21am Feb 12, 2014 11:21am
easy way
http://forex-strategies-revealed.com/hedging-strategy
  • #9
  • Feb 13, 2014 12:03am Feb 13, 2014 12:03am
In that article the author asks.

"So, again, my problem is, I don't know where to look for such brokers that don't apply rollover charges."

Do you know any regulated ones?
  • #10
  • Feb 13, 2014 4:10am Feb 13, 2014 4:10am
Probably written long ago.
Oanda, Thinkforex...swap free acc
I only passed the idea, carry trade is not my choice.
  • #11
  • Feb 15, 2014 5:02am Feb 15, 2014 5:02am
Islamic accounts are swap free. Theoretically, you can have an arb by longing the carry pair and going short in the swap free account, but most brokers have controls in place to prevent the abuse of such accounts.

Exness provides such an account iirc, but if they discovered the abuse, you'll be charged the accrued swap.
  • #12
  • Feb 15, 2014 1:43pm Feb 15, 2014 1:43pm
two brokers !
  • #13
  • Feb 15, 2014 6:29pm Feb 15, 2014 6:29pm
Quoting jaws810
I recently became interested in the carry trade and realized that it involved a high level of risk, so I decided to try to find a combination of pairs that would decrease the risk while maintaining a high interest rate. The two best I came up with were long NZD/USD and short USD/MXN, the USD going in opposite directions minimizes the losses because they move at different rates and in the opposite direction. When I made the trade I realized that there are many times during the week where they become profitable as a pair, I just picked up over 2%...

What you are doing basically is trading without a stop loss and eventually you will blow up your account.
  • #14
  • Feb 15, 2014 7:04pm Feb 15, 2014 7:04pm
Quoting Breza
two brokers !
Yep, but I believe they have anti-abuse measures in place. I spoke to a customer officer at exness, and if you sustain a consistent drawdown on the carry trades, they would revoke the swap free status, unless you are able to justify. That said, I believe there are loopholes we can exploit. Perhaps algorithms that make random but opposite trades to add noise and hinder detection? Any suggestions?
  • #15
  • Feb 16, 2014 1:44am Feb 16, 2014 1:44am
Quoting sargedessy
Yep, but I believe they have anti-abuse measures in place.
to carry trading required to pass a lot of money, which will be welcomed by every broker well, with all the risks that come eg DD or a margin call. I do not think it's abuse of swap free acc.

Quoting sargedessy
That said, I believe there are loopholes we can exploit. Perhaps algorithms that make random but opposite trades to add noise and hinder detection? Any suggestions?
Why not
  • #16
  • Feb 16, 2014 2:05am Feb 16, 2014 2:05am
The inherent strategy is to trade carry trades with a broker that pays the swap, and to hedge it with the broker providing the swap free account. While they do earn the spread of each trade in the swap free account, the swaps (we're trading against the carry) would be incurred by the broker, and charged to their B/S (unless they have some sort of arrangement with their liquidity providers, that I'm not sure).

For a small account, I don't think the brokers would notice, but if one is trading with leverage in the millions, I believe action would be taken.

Yes, the account may suffer significant drawdown, but remember, price fluctuations are hedged effectively across both accounts, one just needs to transfer the profits in the large account to that in the smaller account. In essence, it is a risk-free return.

Perhaps someone with working experience in the fx brokerage industry can shed some light on this. lol
  • #17
  • Feb 17, 2014 10:17am Feb 17, 2014 10:17am
Quoting sargedessy
Islamic accounts are swap free. Theoretically, you can have an arb by longing the carry pair and going short in the swap free account, but most brokers have controls in place to prevent the abuse of such accounts. Exness provides such an account iirc, but if they discovered the abuse, you'll be charged the accrued swap.

Just for your information some Brokers (Like ThinkForex) say "Swap free accounts are available only for Islamic clients".
Other brokers do not discriminate.
  • #18
  • Last Post: Jun 19, 2015 6:15am Jun 19, 2015 6:15am
Quoting sargedessy
The inherent strategy is to trade carry trades with a broker that pays the swap, and to hedge it with the broker providing the swap free account. While they do earn the spread of each trade in the swap free account, the swaps (we're trading against the carry) would be incurred by the broker, and charged to their B/S (unless they have some sort of arrangement with their liquidity providers, that I'm not sure). For a small account, I don't think the brokers would notice, but if one is trading with leverage in the millions, I believe action would be...
Algo doesn't matter the size of operation
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