Tuesday, June 24, 2014

Hedging the carry trade

I'm still researching this idea. I was performing some research on different brokers to see who could provide the best overnight swap / rollover rate for my long USDHKD carry trade (you can compare broker swap rates here).

It turned out IC Markets was the best broker, which was very fortunate for me (I trade mainly via IC Markets already). 

I was also surprised to see that there were some brokers offering positive swap rates on the short side. 

Essentially, what you can do is buy 1 lot and collect interest with one broker (e.g. IC Markets) and sell 1 lot and collect interest with another broker (e.g. Hirose Financial UK). Both positions are hedged against one another, protecting you from losses, while you collect interest from both positions. 

Is this feasible? Other pairs also provide hedged carry-trade opportunities. For example, with the EURJPY, you can go long and collect 0.85 points per lot from OANDA,  and go short and collect 0.3 points per lot from Alpari NZ. 

I'll experiment with some demo accounts to see if this can really work. 


  1. This is very interesting.
    Actually I don't know Hirose Financial UK so maybe there is some kind of guaratee risk... but OANDA and Alpari are for sure reliable brokers. I see you have taken the values from MyFxbook, I'm going to check the values directly on the brokers's site.

  2. Heya. Yeah, there are some 'no-name' brokers listed on myfxbook, some of which are regulated in countries like Cyprus, Estonia, Greece etc. I'd be careful about depositing any real money with them.

    However, the strategy still works even if there's negative swap, just as long as the positive swap exceeds the negative. So if a long position from one broker offered 3 points per lot, and a short position from another broker offered -0.5 points per lot, you can still hedge and make a profit. However, you'll have to exit the hedge eventually, as the trade with the negative swap may get margin-called in the long-term.

  3. Yeah sure the important point is the positive difference between the two values.
    I'm wondering if the 'points' in that table are comparable among different brokers. In other words: 0.10 point of ALPARI has the same economic impact of 0.10 points of OANDA?

    1. As far as I know, it should be the same. I experimented with a demo account with AAAFx and shorted the USDHKD, but they changed their swap rate the next day so it's now negative instead of positive. I'm not sure how long these sorts of opportunities can last.


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