Tuesday, July 8, 2014

Update on the USDHKD carry trade

Sadly, I closed my USDHKD trade last week when my broker changed it's overnight swap from +2.1 points per lot to -6.6 points per lot. I was disappointed since I was hoping to hold this trade in the long-term. 

To add insult to injury, I exited just as price crashed and began to hover around 7.75000, meaning I actually lost money. 

I had opened my longs 20 pips above at 7.75200. In terms of pips I lost, it's not alot, but it still meant that my "low-risk" trade finished in the red, especially once transaction costs were taken into account. 

It was possible for me to keep my longs open and wait for the USDHKD to eventually rise again, but the negative overnight swap would add up, and there was no guarantee that the USDHKD would rise enough to cover the negative swap I'd accumulate. 

When the original premise of my trade became invalid, I thought it was prudent to get out. 

Ever got the thought that something was too good to be true? I always had that feeling in the back of my mind. Oh well. One key lesson I learnt is that the overnight swap rate is much more fluid than I thought, and can significantly differ between brokers. 

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