I am thinking… if I would use CHF as deposit currency, but buy NZD against CHF it and hold it for a long time, it would sort of protect me in case the CHF strenghtens right?(This is only in case I want to make a withdrawal) But also if it weakens, I would “lose” fundamentally but still win because I am holding open positions that go in my favor + interest.
Does this make any sense to you guys?
Hi,
Even though I’m far from being an expert or experienced (I’m still trading on a demo account), I’ll try to share my thoughts with you.
Since january 15th, in which the minimum exchange rate of 1.20 CHF per EUR was removed, there was a sudden drop in “every currency”/CHF, then there’s been an uptrend for two months and now it’s going sideway. Here’s the NZD/CHF:
Better quality here:
pixhost.org/show/1432/26805043_nzdchf-fibo-levels.png
Now the market could go down to the 38.2 fib level, keeping in mind that we are in a strong resistance zone as we can see from the weekly chart:
Better quality here:
pixhost.org/show/1433/26805231_nzdchf-weekly.png
In my opinion after that the exchance rate could go up and so play in your favor.
One thing I’d like to suggest you is that you should not rely too much on the concept of “carry trading”. I’ve read two books by Ed Ponsi about this strategy and yes it is good, but as long as the price goes in your favor or, at worse, it’s a breakeven. Consider this: right now the differential between the New Zeland and the Swiss Central Banks interest rates is 4.25%, this means that if you go long on NZD/CHF you will gain 4,25% over one year! That value has to be lowered a little due to your broker commission on the rollover (I believe they do that). So, as you can see, 4,25% is not that much.
One thing that Ed Ponsi says in his books as an example (and I don’t like) is to think how that 4,25% will go up if you use a leverage of 100, that’s 425% just from the interests differential.
Now, if everything goes sunshine and rainbows, you use a high leverage for one year, the trend is in your favor and you became rich. But for what is my little experience the moment you enter a trade you are losing a little because you are paying the spread to your broker, so if you use a high leverage that “little” is increased proportionally to it. Then if the price goes against you and you have a high leverage, you have to multiply the loss by it (1% drop in the price multiplied by a leverage of 50 is equal to 50% loss on what you invested) that may trigger your stop loss or even a margin call.
In the end I say, aim to hit a trend rather than a carry trading, because the latter does not necessarily imply the former and it’s not really a big gain unless you use a high leverage (which is risky).
I hope i said something useful. In case I made mistakes, please correct me 
Bye
Sorry,
one thing I may have not said clearly:
If the CHF strenghtens, the carry trade would not protect you that much. Again, consider the 4.25% gain over 1 year. The broker will pay you the rollover every day, so you will earn “4.25% divided by 365 (days in one year)” = “0.01164% of what you invested” per day multiplied by the leverage you used. That will be added to your account and not to your position. In case the trend goes against you, you will still lose and hit the stop loss you set before.
Hello Ioris,
and thank you for your detailed answer. I do not plan to “buy and pray”. I would buy in small increments over a few hundreds of pips, higher or lower it doesn’t matter. This will average the buy price. I would open and close positions however the carry aspect would allow me to hang on tho the loosers and let them run :). Yes you are right, the brokers take a huge spread of interest rate, far bigger than they should in my opinion.
But what I really wanted to find out is what is better? To fund the account in CHF since I am going against it? (sort of a hedge if you will) Let’s say I fund it in CHF,and the start a carry xxx/chf, the chf strenghtens so I am loosing on my trades, however if I were to make a withdrawal from my account, the exchange rate would favor me, because I would get more of my local currency per chf withdrawn.
Well, my idea is that by doing this you are actually opening two trades.
Say you live in USA, so your currency is USD.
First you trade USD for CHF, because you want to fund the account in CHF (your bank may charge you a commission/spread to do that and you lose something)
You are going short on USD/CHF
Then you go long on XXX/CHF, let’s say NZD/CHF
Then you collect interests due to the carry trade.
Then you close your NZD/CHF trade and suppose the CHF has strengthened, so you are in loss
Then you decide to withdraw some money, so you are closing the short trade on USD/CHF (your bank may charge you another commission/spread, they can do that since it’s not a regular trade, so you’ll end up paying it twice)
Now the conversion CHF–>USD will depend obviously on the fact that CHF strengthened, but also on whatever happened in the USA (maybe another shale oil boom). So, in some cases, you may be loosing on both trades since the fact that one currency gains strength doesn’t mean that the other can’t gain even more strength.
In any case it seems to me that it would be better to open two trades, rather than change deposit currency (unless you live in a country with political stability at risk, in that case your country currency is destined to go down)
In the end I wouldn’t do that, since you may end up paying the commission twice to exchange CHF with your currency and not having any certainty about how the exchange rate will change.
I hope I said something smart 
“Now the conversion CHF–>USD will depend obviously on the fact that CHF strengthened, but also on whatever happened in the USA (maybe another shale oil boom)”
Very well said. There is no guarantee as they are not correlated. You are right about the commission as it is a 1% charge for the exchange. I guess it is better to stick to my local currency then. (GBP).
Thank you very much loris. You did say something smart 
