£10kLoser
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Depends on which currency pair - some spots will pay you interest to hold overnight and other will charge you. It all depends on the interest rate differentail between the pairs.
It's would be possible to make money on some pairs without getting any pips, theoretically!
It's would be possible to make money on some pairs without getting any pips, theoretically!
I don't think CMC do. The finance costs should be incorporated into the wider spread. Im interested in making money from the differential in interest rates on FOREX pairs. Does anyone know why CMC are quoting the DEC 08 Q bet for GBP vs USD 100 or so points lower than the rolling cash bet? Unless it's some form of adjustment, surely they are leaving themselves vunerable to arbitrage?
£10kLoser
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Futures are almost always considerably different from the spot price, based on whether it's a bull or bear market. It would be odd if the expected future price were exactly the same as today's price. As time progesses, they converge.
For this reason, you'll find it hard to sell the spot and buy the future to reap the interest.
For this reason, you'll find it hard to sell the spot and buy the future to reap the interest.
Sorry if this is a silly question, but why would it be hard? I would buy the futures on one account and sell the spot on a different account. (Using spread betting.) Then at the end of the contract the prices should be the same so i close the trades, collect the pips that I would make from the convergence of the prices? Unless I'v overlooked a problem.
£10kLoser
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That would work if the convergence was only from one side. You are assuming that (forgeting general price movement) that the spot stays still and the future differential decays away with time.
In practice, while they are both moving hundreds of pips, they do converge. So, of the intial 100 pips difference, 50 up (or down) will come from the spot and 50 down (or up) from the future cancelling the two trades out.
Aha, you say! Then why not do that and profit from the overnight swap (interest rate differential)? Because it won't be 50:50 and that's unpredictable.
However, if you find a pair with not much diverganence and a big interest differential (like the GBP/JYP) you can indeed make a profit from the swap - but it's tying up a huge sum of cash for a small gain. The theory is good and this is the carry trade but I'm not sure if I have the balls to risk the £10,000 it needs to make this worthwhile!
In practice, while they are both moving hundreds of pips, they do converge. So, of the intial 100 pips difference, 50 up (or down) will come from the spot and 50 down (or up) from the future cancelling the two trades out.
Aha, you say! Then why not do that and profit from the overnight swap (interest rate differential)? Because it won't be 50:50 and that's unpredictable.
However, if you find a pair with not much diverganence and a big interest differential (like the GBP/JYP) you can indeed make a profit from the swap - but it's tying up a huge sum of cash for a small gain. The theory is good and this is the carry trade but I'm not sure if I have the balls to risk the £10,000 it needs to make this worthwhile!