Swiss Franc Carry Trade Strategy
The September issue of Currency Trader Magazine was released today. Some of the highlights include:
- A look at an advanced carry trade strategy involving the Swiss Franc.
- The CFTC gains jurisdiction over retail forex fraud.
- What will drive the forex market in Q4.
- Yen crosses on the move.
- U.S. dollar rockets higher, Euro tumbles.
- China changes forex regulation.
The magazine can be downloaded for free by signing up at http://www.currencytradermag.com
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Currency Carry Trades Deliver
There's a new article on Investopedia about the carry trade. Some of it is the same old information I've read before on MoneyTec, Forex Factory, or the Oanda forums but there is some information that's fresh.
http://www.investopedia.com/articles/forex/07/carry_trade.asp
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Currency Market Turmoil
This certainly has been an interesting two weeks, one in which I've never quite experienced. I can say that I'm way too inexperienced to fully understand everything that's going on. I've been focused exclusively on technical analysis over the last year whereas before I at least tried to follow the fundamentals aspect of the currency market. I was reading an article today about how Goldman Sachs is warning of "dead bodies" after the turmoil. http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/03/06/cngold06.xml
Like I said, I don't fully comprehend everything that's going on but from everything I read, the carry trade liquidation is the culprit as most of you are probably aware of.
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Make Money With Carry Trades
I don't know if I can call my current state of Forex trading a slump but February has been tough going for a couple of reasons. I've been experimenting with a couple of new strategies and unfortunately I always do so on a live account. This may not be the smartest thing to do but what's done is done. I'm currently at -217 for the month. The H-system is at -102 and Lien Schlossberg is at -83. I found out the other day that when I signed up for the service, I signed up using quarterly payments. This means that I have 3 months of their service. I'm going to see what I can do to change this to monthly because what I've seen so far from them is less than impressive. It's still early in the month so I have plenty of time to recover.
One addition to my trading history is the tracking of interest. I've been talking to another trader about carry trades and I've also been reading about an interesting strategy on the Oanda forums. You can read more about it but basically, this trader will buy a pair where the base currency has a higher interest rate, such as the GBP/JPY. The GBP has an interest rate of 5.25% and the JPY is at .25%. The easiest way to try to explain this is with an example:
First day: He'll buy the GBP/JPY at some predetermined time in the evening.
- If target hits 100 pip profit, he will close position
- There is no stop loss
- If 100 pips profit target is not hit, the position remains open
- He is collecting interest equal to GBP, JPY differential
Second day:
- If the current price is below the price he entered but not more than 100 pips below, he sits tight. Remember, this position is collecting interest.
- If the current price is over 100 pips below the price he entered at, he opens another position based on 1 percent of his NAV. So he is scaling in (on a losing position)
- If the current price is above the price he entered, he closes the position at a profit
To continue the example, I'll assume that he either had to scale in or sit tight.
Third day:
This is basically a repeat of second day steps.
- If the current price is below the price he entered but not more than
100 pips below, he sits tight. Remember, this position is collecting
interest. - If the current price is over 100 pips below the price he entered at, he
opens another position based on 1 percent of his NAV. So he is scaling
in (on a losing position) - If the current price is above the price he entered, he closes the position at a profit
This strategy could incur significant drawdowns but he's also collecting a nice amount of interest on money that really isn't his (leverage.)
I hope I'm understanding this. It's not the easiest thing to explain. Read over the thread at Oanda. I'm not saying I'm going to use this but I've never really investigated carry trade strategies and I find it very interesting.
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