Carry Trade

[HFP23 10]

Do you think that it Is possible to build a portfolio that using most or all of the currency pairs in the world it counteracts the net movement of the whole currency market in a way that produces zero losses from those changes but it gives you a nice net 0.20% or higher for the carry trade interest? I mean, I think it is possible and a 0.20% riskless annual yield is very nice in the long run considering a 100+ leverage, thats a 20% to 40% return on your money, plus the compounding. The problem is how can you prove it to be possible or not, we are talking about a lot of pairs and the complex dynamics between them, plus how to deal whit the changes in interest.

[TheDude 10]

The position will be so huge and complex it will introduce not only execution risk, but issues from surprise events that may push some illiquid pair off course easily.

 

You'd be better off sticking your money in a long term closed account at the bank for 10-15%

 

JMO.

 

Why don't you give it a shot and let us know how you get on?

[HFP23 10]

I made a simple analysis of 127 pairs from Thinkorswim. I found that the average annual long interest rate gained is around 0.0605106%, the average short gain is 0.0538468%, the average long loss is 0.4498615%, and the average short loss is 0.0331761%. The average long loss is around 743.44% higher than the average long gain, and the average short loss is 616.12% higher than the average short gain. We have 96 available wining pairs but on the other side there are 155 loosing pairs. Now it looks very difficult to build a winning position, but I dont know if certain pairs have different impacts on each other and even less by how much, or if those weights are dynamic and change or a if they are relatively static, I dont know much about forex, but if they are different and stable you could make some currency groups whit different amounts of capital distribution based on those weights. I think that the execution risk can be handled by a custom software and I think that the risk associated whit the illiquid pairs could be solved maybe whit options if there are any for them, but I dont know.