Q: Carry trade, interest charges

Hi All

Can someone explain how the carry trade / interest charges works. I’ve got various demo accounts and tested a few scenarios and also looked at the brokers fine print on these and still confused.

Also what’s the best approach for longer term trading (eg holding out for 3 months plus)? Surely you wouldn’t want to buy / sell on a daily rolling basis as the interest charges may work against you (depending on pair and broker’s fees etc).

Thanks

I think you’ve more or less answered your own question - ‘Surely you wouldn’t want to’

The market is too volatile to overcome the risk, it just can’t be done in practice, no point wasting time thinking about it.

Thanks Purplepatchforex … I think you are probably right. So if someone wanted to hold a trade for 3 months plus, what’s the best approach?

Hello.

Well first take a look at this thread:

http://forums.babypips.com/newbie-island/38648-what-function-central-banks-eu-member-states.html

Don’t worry about the Central Bank ‘thingy’ i.e. the thread went ‘off-topic’ (as inevitably happens with any thread when I start posting on it)!!! Take a look at the posts about ‘carry’ and ‘swap’. There are brokers and then there are BROKERS!!! Some brokers (dare I say ‘bucketshop’ brokers) NEVER pay interest (swap) and only CHARGE interest (swap). So there’s one thing to look for. Second: there’s a table posted somewhere on that thread of overnight interest (swap) rates from a particular broker (my very first ‘scam scum scheming thieving bucketshop broker’). Take a look at those rates!!! In other words: there’s something else to look for!!! Rates like that just ‘scream’ ‘bulls*it broker’!!!

Right (and now that I’ve gotten that off of my chest): I ONLY trade long term and try as far as possible to have trades open for months on end. DEPENDING ON YOUR BROKER (as noted above): the overnight interest (swap) rates won’t make a material difference to you profitability I assure you. You’ll either get stopped out or catch a long trend which will MORE than cover any overnight interest (swap). I know somebody who has had an open position on a particular metal for going on one and a half YEARS now and the interest is NOTHING compared to the profit being shown on the trade. But as I said: it’s definitely BROKER DEPENDANT!!! Had this person had that same trade going at the ‘scam scum scheming thieving bucketshop broker’ noted above (and assuming of course that they never ‘spiked’ him out of the trade within the first few days which is probably what would have happened with them) then I think by this time he’d be OWING the broker money in interest (swap)!!! LOL!!!

So LONG story short: it’s not something that you need worry yourself too much about IF you’re trading with a reputable broker (hint: on that same thread there’s a link to a reputable broker)!!! (YEH YEH: ‘CHEAP SHOT’ I know)!!! LOL!!!

Thanks Dale, I like the subtle hints in your response.
I think you are right, it’s down to the broker. Last year, many (including hedge funds) went long on AUDJPY which brought in profits galore, and the icing on the cake, was the interest rollerover earned. I’ve checked and some brokers sneak in a sur-charge of 2%, which DOES make a difference if you are in it for the long term with a high leverage.

Hello,

My pleasure.

Come to think of it: SOMEWHERE on on these very forums I remember somebody posting about a ‘hedging’ system of sorts. The idea was that you were short a certain pair at ONE broker and long the same pair at ANOTHER broker and as long as you kept both account ‘in kilter’ with each pther (so that you could not get margin called) then you would ‘make’ the interest every day. I forget the details exactly and I remember thinking that LOGICALLY it made sense but in hindsight, and as I type this now, and with a bit of experience ‘under the belt’ (this ‘system’ I saw detailed here YEARS ago): by the time you’d paid bank charges and deposit and withdrawal fees at each broker when ‘aligning’ the accounts you’d probably not ‘make’ anything. But THEN AGAIN (and as I type this): doesn’t a broker like Oanda let you open seperate accounts and transfer between each account ‘at will’ (with or without charges)??? I’m not sure on this one. Put it this way: THEORETICALLY and if there are NO OTHER charges involved it could be possible not so??? If memory serves me correctly: at THAT time the pair was GBP/JPY but I should imagine that’s changed by now (I’ve not bothered to look at the time of my posting this).

Regards,

Dale.