Interest earned on FX Margin position

Jasi · Sep 25, 2005

Certain currency pairs yield interest rate differential and being a leveraged position one can make that as income.
Based on this theory I am trying to find out if
1) The following is possible
2) Is there a reputable broker, platform which will offers this under one platform

Long spot position GBP/JPY or AUD/JPY with 100:1 Leverage and earn 4-5% on the entire position
Protect this spot by buying ATM Put
Sell ATM Call to recover the cost of the Put
Keep the position for a year
So hope that the cost of hedging is less than the interest income
Is this possible?

Or another way ( in reverse)

Short sell stock ( assuming the cash generated generates interest income)
Buy Call to protect
Sell Put to recover the cost of call
So hope that the cost of hedging is less than the interest income
Is this possible?

Or with CFD ( but CFD are not on the same platform as options?

Any suggestions?

sccz97 · Sep 26, 2005

Jasi said:
Certain currency pairs yield interest rate differential and being a leveraged position one can make that as income.
Based on this theory I am trying to find out if
1) The following is possible
2) Is there a reputable broker, platform which will offers this under one platform

Long spot position GBP/JPY or AUD/JPY with 100:1 Leverage and earn 4-5% on the entire position
Protect this spot by buying ATM Put
Sell ATM Call to recover the cost of the Put
Keep the position for a year
So hope that the cost of hedging is less than the interest income
Is this possible?

Or another way ( in reverse)

Short sell stock ( assuming the cash generated generates interest income)
Buy Call to protect
Sell Put to recover the cost of call
So hope that the cost of hedging is less than the interest income
Is this possible?

Or with CFD ( but CFD are not on the same platform as options?

Any suggestions?

there's really no need to complicate matters with purchasing options. Just find two seperate brokers, one which pays interest ... one which doesn't ... long a pair with a +ve differential with the first broker and short the pair with the second. Once you've covered the cost of the spread the money just rolls in (assuming your funds are sufficient to not stop you out on one leg of the straddle)

jmreeve · Sep 26, 2005

there's really no need to complicate matters with purchasing options. Just find two seperate brokers, one which pays interest ... one which doesn't ... long a pair with a +ve differential with the first broker and short the pair with the second. Once you've covered the cost of the spread the money just rolls in (assuming your funds are sufficient to not stop you out on one leg of the straddle)

And assuming you can find a broker that does not pay/charge the correct amount of interest.

Jasi · Sep 27, 2005

SCCZ97

Do you know any broker who does not charge interest?
If there is no such broker then what you are suggesting is not workable
ANd even then what about margin, call 100: 1 leverage your margin can be wiped out easily!
If you now a broker please post details

Depth Trade · Sep 27, 2005

Hello Jasi, I think Sccz97 idea is the only way you could hold a position without knowing the general trend direction. If you held one pair that paid 'your' intrest the swing that would be possible could easily take out your position.
hence ,you still need to know direction.
If you want to hold a certain pair I could do the 'numbers' for both sides and position you at optimal time too take advantage of the intrest, while also making money off the positon.

bullcar · Sep 27, 2005

surely, you can only get interest on the funds you put up?

mickandpete · Sep 27, 2005

Bullcar
I think what they are suggesting is.....the interest rate differential
For arguements sake Euro 2% US $ 4 %
Sell Euro buy $ to roll on you need to borrow Euro at 2% lend $ at 4% thereby earing 2% given the pair retain exchange rate.

josbarr · Sep 27, 2005

GBP/JPY if you buy you'll credit about 3-4%

Jasi · Sep 28, 2005

josbarr said:
GBP/JPY if you buy you'll credit about 3-4%

Correct that is the idea however still trying to find a broker platform who would allow this under one platform or a broker who does not charge interest for teh reverse positiion

mickandpete · Sep 28, 2005

Sorry to disillusion you but the market has already thought of this
The theory is the basis of the FORWARDS market and can be worked out by the formula

PTS= INT DIff x days x outright FX rate
_____________________________
360 x 100

For example Euro 2 % US$ 4 % one month = 30 days Outright 1.2
2 x 30 x 1.2 divided by 36000 =0.0020 pts
Believe me its a long time since i worked one of these out
For cable 365 x 100
Why 360 ? I forget any prompts gratefully accepted

sccz97 · Sep 28, 2005

mickandpete said:
Sorry to disillusion you but the market has already thought of this
The theory is the basis of the FORWARDS market and can be worked out by the formula

PTS= INT DIff x days x outright FX rate
_____________________________
360 x 100

For example Euro 2 % US$ 4 % one month = 30 days Outright 1.2
2 x 30 x 1.2 divided by 36000 =0.0020 pts
Believe me its a long time since i worked one of these out
For cable 365 x 100
Why 360 ? I forget any prompts gratefully accepted

so what if the market has 'thought of it'? The fact is there are brokers out there who do not follow market convention nor do they pay/receive the correct amount of interest and this a simple risk-free arb to exploit. Whether you feel it's worthwhile spending any tie investigating this further boils down to how serious you are about learning differnet strategies available

It's been a while since I've looked at the retail side but i recall a few brokers out there who charged a fixed amount of interest (like 1 pip) on their mini accounts but full on their standard accounts. I'm not gonna spell it out for you otherwise you'll always be looking for other ppl's ideas to make money. The market is constantly changing so always be looking for new arbs. You'll be surprised by the number of zero-risk strategies retail traders can exploit

mickandpete · Sep 28, 2005

If there are any brokers out there who do not grasp this very basic market principal..
I certainly would not deposit a penny with them

sccz97 · Sep 28, 2005

mickandpete said:
If there are any brokers out there who do not grasp this very basic market principal..
I certainly would not deposit a penny with them

it has by no means got anything to do with whether they "grasp this very basic market principal". As a broker, they can choose to do whatever they want, and if such an opportunity exists to gain profit risk-free and one doesn't take it, then it's no wonder that crazy 90% failure rate statistic exists.

Jasi · Oct 3, 2005

Back to my basic question
Is there a broker who does not charge interest?ANd is a there a broker who has FX Spot and Options on one platform? (Apart from saxobank)

JumpOff · Oct 3, 2005

oanda.com has some kind of box option thing. I'm not familiar with it, but I see iti available on my simulator spot platform.
JO

Beachie41 · Oct 3, 2005

Jasi said:
Certain currency pairs yield interest rate differential and being a leveraged position one can make that as income.
Based on this theory I am trying to find out if
...........
Any suggestions?

Trader/God · Oct 3, 2005

Most brokers do not pay anywhere near a fair amount of interest and some will not disclose in advance how much they will pay, you should find this out before you open the account.

Here is the foolproof way to do what you are asking:

Open an account with the broker who pays the highest interest to earn the rollover.

Open a Interest -Free account with another broker on the other side of the pair to hedge (this account is offered as a religious options for Muslim clients who are prevented from earning/paying interest).

Assuming neither firm goes bust in that time you will have a perfectly hedged position and can just earn the interest.

Trader/God

Beachie41 · Oct 3, 2005

Trader/God said:
Most brokers do not pay anywhere near a fair amount of interest and some will not disclose in advance how much they will pay, you should find this out before you open the account.

Here is the foolproof way to do what you are asking:

Open an account with the broker who pays the highest interest to earn the rollover.

Open a Interest -Free account with another broker on the other side of the pair to hedge (this account is offered as a religious options for Muslim clients who are prevented from earning/paying interest).

Assuming neither firm goes bust in that time you will have a perfectly hedged position and can just earn the interest.

Trader/God

Upfront & fair. Probably about the best you can get for executing a C&C trade strat..

http://fxtrade.oanda.com/fxtrade/interest_payment.shtml
http://fxtrade.oanda.com/fxtrade/interest_calculation.shtml
http://fxtrade.oanda.com/fxtrade/interest_calculation.shtml#

JumpOff · Oct 4, 2005

I wonder what part of this I do not understand. Trading is about making $. Plenty enough to leave interest issues in the dust. Why go through all the hassle of opening hedge accounts in order to earn an extra point or two of interest? Aren't there easier ways to earn interest? Can't you make more money in one morning of concentrated trading effort?
JO

Beachie41 · Oct 4, 2005

JumpOff said:
I wonder what part of this I do not understand. Trading is about making $. Plenty enough to leave interest issues in the dust. Why go through all the hassle of opening hedge accounts in order to earn an extra point or two of interest? Aren't there easier ways to earn interest? Can't you make more money in one morning of concentrated trading effort?
JO

With a vanilla C&C and/or variations using griding ets you have the potential of earning a few 100% a year on your account with very balanced risk and with very little baby sitting.
I check my position once a week. Others more so, some less. Either way, it's a good little earner. Read up on some of those links I posted earlier.
A simple example. Buy 10,000 units of AUDJPY & hold for 1 yr. Margin used to initiate trade @ 50:1 is US$153. Interest earned = $364.
http://www.oanda.com/products/fxmath/interest.shtml
Now if you buy a basket of currencies using a defined ratio you can cancel out your Eur & USD holding so you have no exposure to their volatility *and* balance out the gyrations of the pairs themselves.
That's a very simplified view, but it's the basis of C&C
This strat will not work well with all brokers/MM's eg. IB only pays interest on the monthly balance & some MM's even charge for both borrowing & selling. Not good

Interest earned on FX Margin position

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