A noob question on hedging

Ok I heard about a lot of strategies involving buying GBP/JPY to hold it for interest while shorting the same pair in another account. but does not NZD/JPY offer the best interest paid? thanks in advance

I always have trouble with interest. It not hard to understand, but, my Brain is getting lazy in it's old age. What I do is make a trade on a Demo Account and see how it work! Now, the determining factor will be interests rate changes. Just go into a Demo and Open two Positions, one on each and see what you get! This all I can say. It my Simple way of knowing. I do think some Brokers provide an Interest Rate Calculator that help with this, but, I have never used them, Sorry.

You would think that was the case...but that's not true. You have to normalize to the amount of yen purchased.

1 lot of the GBP/JPY yields about 22.4 million yen.
1 lot of the NZD/JPY yields about 7.6 million yen.

as you can see, GBP/JPY is about 2.9 times the size of the NZD/JPY...that means you have to purchase 2.9 times as many lots of the NZD/JPY in order to normalize to the yen.

Now, even though the rates are roughly the same...the spread cost is vastly different.

NZD/JPY is usually 9 pips, while the GBP/JPY is usually 10 pips...however, BOTH the GBP/JPY and the NZD/JPY have the same pip cost.

Thus...when you pay for 10 pips of the GBP/JPY you payaround $90...however when you pay for the equivalent Yen count of the NZD/JPY, you're looking at $243...now, multiply that times 2 and you're looking at a difference in trading costs of about $300. The difference in interest PER DAY is about $10. Thus it would take 30 days over interest just to overcome the difference in trading costs. That means in order to make the difference worth while, the system has to survive longer than 30 days without having to rebalance.

Basically, what we're saying is that the trading costs of the system are much higher when dealing with the NZD/JPY. The amount of interest differential does not overcome the costs to actually purchase the equivalent lot size of the GBP/JPY...so basically, the GBP/JPY gives you more bang for your buck.