Carry trade strategy

Carry trade strategy

In this article I want to talk about the impact on the swap position trading in the forex market and the practical application of this concept of the market in the form of carry trade strategies.

Swap operations (swap) in the forex market are used to transfer open positions on the following day. Depending on the difference in interest rates on currencies, open position to increase or decrease in the ratio indicated in the table swap your dealing center. These data can be very different for different brokers, so if your trading system takes into account the earnings on the swap, you should carefully consider the proposed conditions.
The very concept of swap is well described in various review articles with detailed examples, so I will not repeat publicly available information. Just recall that on the night from Wednesday to Thursday in an open position triple swaps are calculated.

Islamic accounts

Islam forbids usury, and thus receive interest on loans. Therefore, there Islamic accounts, which are much cheaper to use in long-term trading in a protracted flat or in recession.
If before such accounts were available only to Muslims, now in the vast former Soviet Union there are more DC, offering service to Swap-Free. For opening of positions taken some commission, but generally get a much more economical to trade crosses against the commodity currencies. It is also beneficial to such a service for those accustomed to abuse of locking. If the trader assumes the emergence of carry trades, it can easily pass on the standard terms of trade.

Numerous bonus-hunters saw this as an opportunity to earn a "forex forks." They are trying to use Islamic accounts for locking out long positions in commodity currencies. As the saying goes: "trifle, but nice."
However, dealing companies are trying to calculate these customers and their accounts are excluded from the group Swap-Free.


Introduction to the Carry trade strategy

Strategy carry trade - one of the most popular trading strategies forex. It is effective for long-term positioning. The basic principle of the strategy is that it is based on the considerable difference in interest rates between high-yield and low-income currencies.

At present almost all the world's banks are using the carry trade to generate additional income.
No exception and our banks. Many people probably know that the foreign loan can be taken at a rate of around 3-4%, while we have taken loans under the 10-15% APR. Given this possibility, our banks are taking huge loans to well-known European banks, under certain conditions and earn the difference, practically without any risk.

But we are certainly not interested in the earnings of banks, and the possibility of using this strategy in the currency market.

Break-even months-commerce strategy carry trade could bring a good result in the appendage to deposit in the form of swaps. But this is an ideal. In fact, chances are that the price will remain in place, too scanty.
Mainly due to the fact that when the commodity currencies are growing, their trend may continue for months. And this is just a good excuse to hold a long position. But their decline is usually too much and rapidly. And this fall you can lose not only profit but also the deposit.
It is therefore important to understand when you can use this strategy to trade and when to avoid purchases of commodity exchange, or quickly close the deal on them.


Features carry trade strategy

The most effective strategy for carry trade was in 1980-1990's. These years have seen the most tumultuous in the history of stock market growth over the past two decades in a row. It was a period of market euphoria, and for profitnoy trade this strategy had to be just in time fill up with the trend, while the long-positions.

Since that time, the market has changed considerably and now need to carefully monitor the fundamental data and assess the overall speculative mood of major market participants.
During the economic recovery and increases the money supply has to contend with rising inflation. Interest rates usually increase at the same time that the country attracts a massive flow of speculative capital.
Depending on the economic challenges and priorities, these rates over time can vary considerably. And even hints of future changes in interest rates in the country can cause significant fluctuations in currency exchange rates.

So, we still decided to make a carry trade. Which currency do you choose for this Carry trade strategy?
First of all, look at the table in the selected swap dealing center and find a pair with the maximum positive swap. Of course, not all are suitable for our trading system, we reserve the most driving cross-country races.
Among the most interesting for us to commodity currencies generally high rate of the Australian and New Zealand dollar, Canadian dollar and Norwegian krone. And the more exotic - the Mexican peso and YuARovskogo Randy. That cross-rates with those currencies are most often used to carry trade strategy.

Carry trade strategy Search patterns

As it turned out, the forex market a lot of patterns that can be used to optimize their trade.
Take one of them. Statistics show that the movement continues the momentum of Thursday's usual environment. Given the triple swaps, you could easily fill up on the trend high-income couples. And although some profit from that you can get, but still can not forget that the strategy - long term and positive in intraday trading swaps are not essential to the final result.

Carry trade strategy - Now on to more global patterns.
Once we have determined that our strategy is dependent on fluctuations in commodity currencies (sommodity currencies), it is logical to tie them to the dynamics of the securities market.
I have often talked about the cyclical crises. Typically, the cycle lasts from 4 to 7 years. In the long-term trade enough to analyze (and if necessary adjust) its position in the market several times a month. The stock market trend momentum can last from several months to several years. And at the beginning of a strong correction, analyzing the market for just a Friday night, you can close the position with minimal losses. The reason for this may be a drop in the index by more than 1% for the week.

Fondoviki revealed an interesting pattern: the maximum growth of securities shown in the period from November to April. Then there is a slowing down or flat. There are several fundamental reasons, but for us the main thing - to record this information for yourself, then to apply the necessary knowledge in the forex market.

If, however, to analyze the stock market over the years, it reveals another striking pattern: over the past 50 years, the third year in the United States presidency has always made a significant increase in the stock market. For the fourth year (he is - an election year) also was most profitable for investors. In the first and second year 60% of the market flat or in a Down. In the last cycle, this sequence a few crumpled, but it is unlikely to be broken and violated in the future.

What I post these sequences? Knowing when the stock market should grow up, we certainly can determine the period of growth and commodity currencies. That they are the basis of earnings in the carry trade. So if you're in a hurry - take it and use it. On average, 2.5 years, we have confidently carry trade from a four-year cycle. Agree that a good sequence for stable earnings.

Carry trade strategy Conclusion. For whatever trading system and you are not traded, no matter what trading tools are not used, always be aware of this amazing strategy as the carry trade. It is no big deal, but a systems approach, it might be a good addition to the total profits, as well as the key to your future wealth.


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