Hi,
I learned about pegged currencies recently. I wondered if this type of pair could be traded as a carry trade: the risk from having your position moving against you would be eliminated, and profits would be made from interest rates differentials. For example, opening a long position on the USD/SAR would be profitable and without risk, as both currencies are pegged together. The difference between the 5,5% interest rate of the U.S. and the 6,22% interest rate of Saudi Arabia could yield nice profits when combined with big leverage and time. I am new to this, so I would apppreciate any feedback on this idea and all the weaknesses that it probably contains. Thanks!
First of all, swap rates of retail forex brokers are marked up, so a less than 1 percentage point difference between the interest rates might not be enough.
I’ve traded with multiple brokers and I’ve never seen this currency pair anywhere. And I doubt brokers and their liquidity providers (if any) have any incentive to offer currency pairs that are heavily pegged.
The only exception I can remember is EURCHF between 2011 and 2015.
This sounds more like a theoretical technique to make money. In practice the spread on any pair including an “exotic” currency like SAR might massively undermine profits.
With my brokers I have always found that the risk on any position on the D1 time-frame to any stop-loss makes trading such pairs unaffordable.
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