carry trade using futures as hedge

[ca$h22]

Hi All,

I am curious if anyone has tried doing a carry tried (probably gbp/jpy) and used currency futures on the Chicago Merc as a hedge. If so, can you please explain some of the cons of using such a strategy.

I know that it will not be an exact hedge, but it's the closest there probably is for retail traders like us, unless you can find a forex broker who doesn't pay/charge overnight interest, which I can't.

Also, of course doing it using futures will require more margin because they are not as leveraged as forex. But are these the only reasons or troubles that one would run into?

THanks.

Jimmy

 

[ca$h22]

ANyone? Beuhler? Beuhler?

 

[Phoenix669]

you will be paying interest on one side, and the future will be discounted so to speak for the interest rate*time till expiration, so you will be neutral interest rates.

 

[Rhody Trader]

I am curious if anyone has tried doing a carry tried (probably gbp/jpy) and used currency futures on the Chicago Merc as a hedge. If so, can you please explain some of the cons of using such a strategy.

What exactly are planning on hedging?

 

[Phoenix669]

if you want to get into hedging the carry, look into a zero interest broker...although highly unstable, they may let you hold a long term gbpyen short.

 

[ca$h22]

Dear Rhody Trader,

I am looking to hedge the exchange rate fluctuations. I just want to collect interest on the interest rate differentials each night and not have to worry about the exchange rate moving up or down drastically. The idea would be to buy a pair like the gbp/jpy and receive interest from a broker that pays it, and then sell the same pair from a broker that doesn't charge overnight interest. That way, in terms of the rate fluctuating, you are neutral, but you still collect the ~$26 per contract held each day in interest. In other words, free money. The problem is finding a broker to take the short side of that position who won't charge you the interest.

Dear Phoenix,

I have looked into zero interest brokers, but the only one's I could found that didn't sound extremely sketchy only allowed zero interest for religious reasons (i.e. you were muslim). But this was zero interest in name only, because at the end of each month, they had a way of settling up. Marketiva was one that someone suggested, but people on various boards blasted these guys for being scammers. Anything with even a hint of scam, I will not hand over my money to.

Cheers

 

[Phoenix669]

check crown forex.

 

[£10kLoser]

No good if you live in the US but you can do this with a spread bet firm. Get your interest on the spot daily and hedge it with the future (which doesn't charge interest). You'll lose about 7 pips on the spread for both but gain about 1.6 pips a day interest. After a week, it's pure profit with zero risk.

I do one with IG and the other with Capital Spreads so it's not obvious...