Carry Trade

The Japanese currency rose today on Forex during the Asian trading session as the stocks market drop spurred carry trade sell-offs and the liquidation of the yen-based high-risk assets. The yen gained against Great Britain pound, U.S. and Australian dollars, while remaining relatively weak against the euro today. German Ifo report on business climate in the country was released today at 8:00 GMT s

What is a currency carry trade? The currency carry trade, known simply as carry trading is a strategy where the investor sells a currency with a relatively low borrowing rate and uses the borrowed funds to purchase another currency with a higher interest rate differential. An investor using this strategy attempts to take advantage of the interest rate differential. A good example of a currency susceptible to carry trades is the Japanese Yen,whose borrowing rate is at 0.5 percent. Eg. A trader borrows 2,000 Yen from a Japanese Bank the converts it to Australian Dollars then buys a bond for the equivalent amount. Assuming that the bond pays 5 percent and the Japanese interest rate is 0.5 percent, the trader expects a 4.5 percent profit under the condition that that the exchange rate between

‘In 1998, there was a massive yen carry trade going on. Interest rates were a half percent in Japan… The institutions were all pouring in borrowing the yen in order to buy the emerging market countries. Then we had the Asian financial crisis and a real deleveraging. At the time, [...]

This is an update on the performance of the Chinese Yuan Carry Trade Basket. The experiment was started with a base of $100,000 on March 20, 2007. I have included the performance figures for both of the experiments that I have been running, although they are the same in composition, I have leveraged them differently. Since Inception (5 times leveraged basket): Increase (decrease) in Account Balance: $27,338.01 Increase (decrease) in Unrealized Gains: $20,811.01 Increase (decrease) in Net Asset Value: $48,148.52 Total Portfolio Value: $148,148.52 +48.15% Since Inception (10 times leveraged basket): Increase (decrease) in Account Balance: $54,675.02 Increase (decrease) in Unrealized Gains: $41,622.02 Increase (decrease) in Net Asset Value: $96,297.04 Total Portfolio Value: $196,297.04 +96.29% As an update, each currency pair in this basket, minus the USD/CNY pair is showing an unrealized profit. The 10x leveraged currency basket yields about $347.41 in interest per day, r

This is an update on the performance of the Chinese Yuan Carry Trade Basket. The experiment was started with a base of $100,000 on March 20, 2007. I have included the performance figures for both of the experiments that I have been running, although they are the same in composition, I have leveraged them differently. Since Inception (5 times leveraged basket): Increase (decrease) in Account Balance: $11,019.70 Increase (decrease) in Unrealized Gains: $23,221.74 Increase (decrease) in Net Asset Value: $34,241.44 Total Portfolio Value: $134,241.44 +34.24% Since Inception (10 times leveraged basket): Increase (decrease) in Account Balance: $22,039.40 Increase (decrease) in Unrealized Gains: $46,443.47 Increase (decrease) in Net Asset Value: $68,482.87 Total Portfolio Value: $168,482.87 +68.48% +55.87% In 17 days since the last update, the portfolio has increased by 12.61%, which has been due to the continued weakness in the US Dollar versus all major currencies.

Si hace poco exponía las ventajas de usar el cambio de divisas para elaborar mi “Método para comprarse una vivienda a precio asequible”, hoy voy a exponer un método para realizar inversiones aprovechándose de los diferentes tipos de cambio existentes en los diversos países del mundo. No es aconsejable para inversores poco expertos, pero sinceramente creo que en este país hay que “desarrollar una mayor cultura económica”, por lo que está bien ir conociendo las diferentes opciones que nos ofrece el mercado (saliéndonos de los tradicionales productos que todo el mundo conoce, porque invertir en Letras del Tesoro, no tiene demasiado mérito). El método propuesto es el Carry Trade. Explicándolo con un sencillo ejemplo y tomando como referencia el yen japonés (de nuevo), podríamos decir que : Partiendo de los bajísimos tipos de interés del Banco de Japón (0.5%), una persona puede ir vendiendo yenes (recibir un préstamo denominado en yenes con un

Mid July 2007 has caught many carry traders off-guard. Currency investors are suffering their biggest losses in years as wider swings in Forex currency market knock the carry trade off the rails. Carry trade, the most profitable strategy in foreign exchange, thrives when exchange rates are stable since the technique involves buying and investing currencies of [...]

Global stocks markets calmed by central banks' generous currency interventions last week are doing quite well so far. EUR/USD and other currency pairs influenced by carry trade and subprime lending crisis chain reaction (mostly EUR/JPY and GBP/JPY) also don't jump madly through and out the support and resistance levels anymore. But what will happen next? Will the markets just soak up the

“When there is blood in the streets, it’s time to buy.” Obviously, this saying could not be any truer than the situation that investors all over the world are experiencing at the time of writing this post. Fear and risk grip the global marketplace in a way that hasn’t been seen since 2003. Investors everywhere should soon be taking advantage of the readjusted asset prices in all areas of the market, and because of this, I believe there will be a re-emergence of the carry trade that has been driving the currency markets over the past few years. The currency carry trade involves the buying of high yielding currency and the simultaneous selling of a low yielding currency. The idea behind this type of trade is that an investor looks to lend at the interest rate in the high yielding currency and finance or borrow at the low yielding rate of another currency. This is similar to the operations of domestic banks that “borrow” money from depositors, in the form of pay

This is an update on the performance of the Chinese Yuan Carry Trade Basket. The experiment was started with a base of $100,000 on March 20, 2007. I have included the performance figures for both of the experiments that I have been running, although they are the same in composition, I have leveraged them differently. Since Inception (5 times leveraged basket): Increase (decrease) in Account Balance: $9,569.53 Increase (decrease) in Unrealized Gains: $18,364.90 Increase (decrease) in Net Asset Value: $27,934.43 Total Portfolio Value: $127,934.43 +27.93% Since Inception (10 times leveraged basket): Increase (decrease) in Account Balance: $19,139.05 Increase (decrease) in Unrealized Gains: $36,729.80 Increase (decrease) in Net Asset Value: $55,868.85 Total Portfolio Value: $155,868.85 +55.87% The Chinese Yuan Carry Trade Basket has been traded for over three months and has given an investor an annualized return of 97.09% and 194.20% respectively. While past performance i

The Yen carry trade truly is a bizarre creature. The carry is really a play on the Ministry of Finance/Bank of Japan’s assiduous care in keeping the Yen/Dollar relationship fairly stable and rate spreads. Low rates in Japan allow speculators to borrow on an absurd scale in Japan in invest in higher yielding assets abroad [...]

Foreign exchange markets are well outside of my circle of confidence—it’s like voodoo to me. Other than the certainty of a U.S. dollar collapse in the long term, I don’t know how to value currencies like stocks. Because of this, take this post as a pointer to an interesting phenomenon, not investment advice or ideas. In [...]

Here is an update on the performance of the Chinese Yuan Carry Trade Basket. The experiment was started with a base of $100,000 on March 20, 2007. Since Inception: Increase (decrease) in Account Balance: $7,379.42 Increase (decrease) in Unrealized Gains: $12,751.94 Increase (decrease) in Net Asset Value: $20,131.36 Total Portfolio Value: $120,131.36 +20.13% Although the Chinese Yuan has been gaining considerable strength over the past three months, declining about 1.31%, my belief is that the currency will tread water for now.  The quick decline was due to political pressure placed on China to appreciate the Yuan.  I have also been running the Chinese Yuan Carry Trade Basket at double the size of the positions as was presented in the original post.  The performance of that fund is just two times the above performance figures.  Please check back for further updates at a later time.  I would appreciate any suggestions on improving the strategy.

Here is an update on the performance of the Chinese Yuan Carry Trade Basket. The experiment was started with a base of $100,000 on March 20, 2007. Since Inception: Increase (decrease) in Account Balance: $7,379.42 Increase (decrease) in Unrealized Gains: $12,751.94 Increase (decrease) in Net Asset Value: $20,131.36 Total Portfolio Value: $120,131.36 +20.13% Although the Chinese Yuan has been gaining considerable strength over the past three months, declining about 1.31%, my belief is that the currency will tread water for now.  The quick decline was due to political pressure placed on China to appreciate the Yuan.  I have also been running the Chinese Yuan Carry Trade Basket at double the size of the positions as was presented in the original post.  The performance of that fund is just two times the above performance figures.  Please check back for further updates at a later time.  I would appreciate any suggestions on improving the strategy.

Here is an update on the performance of the Chinese Yuan Carry Trade Basket.  The experiment was started with a base of $100,000 on March 20, 2007. Since Inception: Increase (decrease) in Account Balance: $2,646.52 Increase (decrease) in Unrealized Gains: $9,830.41 Increase (decrease) in Net Asset Value: $12,476.93 Total Portfolio Value: $112,476.93        +12.48% Since Last Update on April 7, 2007 (One Week): Increase (decrease) in Account Balance: $791.08 Increase (decrease) in Unrealized Gains:$3,830.41 Increase (decrease) in Net Asset Value: $4,621.49 The basket has been the beneficiary of deteriorating fundamentals of the US Dollar.  All the positions in the basket are in profit, except for the the USD/CNY positions, which is our carry trade borrowing currency.  Please check back for further updates at a later time.  Please post any questions you may have.

Here is an update on the performance of the Chinese Yuan Carry Trade Basket. The experiment was started with a base of $100,000 on March 20, 2007. Since Inception: Increase (decrease) in Account Balance: $2,646.52 Increase (decrease) in Unrealized Gains: $9,830.41 Increase (decrease) in Net Asset Value: $12,476.93 Total Portfolio Value: $112,476.93 +12.48% Since Last Update on April 7, 2007 (One Week): Increase (decrease) in Account Balance: $791.08 Increase (decrease) in Unrealized Gains:$3,830.41 Increase (decrease) in Net Asset Value: $4,621.49 The basket has been the beneficiary of deteriorating fundamentals of the US Dollar. All the positions in the basket are in profit, except for the the USD/CNY positions, which is our carry trade borrowing currency. Please check back for further updates at a later time. Please post any questions you may have.

The success of this basket so far is exceeding my initial expectations. I have uploaded a spreadsheet of the account transactions, including interest payments, available for download if you wish to inspect the results. While the overall sentiment over the past few weeks (since March 20, 2007) has been bearish the dollar, I still feel that this basket can still continue similar returns in any currency environment. I am a bit disappointed with Oanda for increasing the interest rate at which an investor can borrow at in Chinese Yuan (Previously it was -1%; now it has increased to .5% for a total increase of 1.5%), but we can make due with what we have. The results after two weeks: Total Increase (Decrease) in Account Balance: $1,855.44 Total Increase (Decrease) in Unrealized Gains: ~$6,000.00 Total Increase (Decrease) in Net Asset Value: $7,855.44, or a 7.86% Return in Two Weeks The 7.86% return in two weeks represents an annual return of 204.36% without compounding. Now the timing of the

The success of this basket so far is exceeding my initial expectations. I have uploaded a spreadsheet of the account transactions, including interest payments, available for download if you wish to inspect the results. While the overall sentiment over the past few weeks (since March 20, 2007) has been bearish the dollar, I still feel that this basket can still continue similar returns in any currency environment. I am a bit disappointed with Oanda for increasing the interest rate at which an investor can borrow at in Chinese Yuan (Previously it was -1%; now it has increased to .5% for a total increase of 1.5%), but we can make due with what we have. The results after two weeks: Total Increase (Decrease) in Account Balance: $1,855.44 Total Increase (Decrease) in Unrealized Gains: ~$6,000.00 Total Increase (Decrease) in Net Asset Value: $7,855.44, or a 7.86% Return in Two Weeks The 7.86% return in two weeks represents an annual return of 204.36% without compounding. Now the timing of the

In the previous post entitled “Chinese Yuan Carry Trade Basket Experiment,” I described the basic composition of the basket of currencies in that post and this post I have set out to develop a plan to further take advantage of the interest that is received on the currency positions.  I looked to a popular stock investment strategy, entitled DRIP (Dividend Reinvestment Plan), takes the dividends that a company pays on its stock reinvests the dividend into that company’s stock. The DRIP strategy runs off of the idea of compounding, where you are receiving dividends, reinvesting those dividends, and then earning dividends off of your initial investment plus the stock which was purchased in the reinvestment plan. I am proposing using the idea of the DRIP strategy in combination with the carry trade basket so that the interest that is paid on the basket is reinvested equally over the entire basket, instead of different amounts being invested in the specific currency pair

As mentioned in my previous post in regards to the New Turkish Lira being the top currency choice to hold long in a carry trade portfolio, my new short position choice is now the Chinese Yuan. The FOREX broker that I use, Oanda, is currently offering an interest rate of 5.925% per annum to traders who hold the USD/CNY long, meaning long USD and short CNY. Even though the Chinese Yuan is currently being allowed to appreciate by its government, the Yuan has only appreciated against the dollar by about 3.6% over the past year. It is not in the best interest of the Chinese government to allow its currency to appreciate greatly against the other world currencies, especially the US Dollar, because of China’s dependence on exports. All the talk over the past few weeks has been about the carry trade implosion when Japan announced and put into action its end to the 0% interest rate policy.  Over the past few days, all the talk has shifted to the Swiss Franc because investors are now look

Hi folks. So, I received quite a few emails and comments about the forex strategy I am currently using, well, what can one say, I won’t keep money in the bank, that’s for sure because it works like a charm. So, here you have the strategy I am using. IMPORTANT, first and foremost, this is an interest earning [...]

There's so much talk about the Yen carry trade lately, especially because many think it's coming to an end. But all this depends on the interest rate decision coming from BoJ (Bank of Japan) Wednesday, 21 February 2007 and BoJ governor Fukui's speech right afterwards. I'm sorry I can't give you an exact hour for this interest rate announcement, but BoJ doesn't always give reports as important as this one to the public at an exact time to prevent excess volatility into the market. The outcome is very important to everyone trading forex.But what's this "carry trade" everyone's talking about?Here's a definition from Investopedia:A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates - which can often be substantial, depending on the amount of leverage the investor chooses to us