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| Looking for some advice on hedging positive swap trades https://www.stevehopwoodforex.com/phpBB3/viewtopic.php?t=5629 |
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| Author: | Jamesmsv [ Wed Feb 27, 2019 1:48 pm ] |
| Post subject: | Looking for some advice on hedging positive swap trades |
On my trading to-do list for a while now has been learning about carry trades and/or positive swap trades as something to add to my portfolio. Having done some reading and sketching out a basic trade plan I thought this would be the best place to come for some advice from those of you who have some experience. I think I have a decent formula but I am not sure if I have fully understood the theory behind swap trades, and we all know that ignorance is very dangerous in this game. As an aside I was heartened to see Steve's recent post showing some of the benefits of paying attention to swaps: http://www.stevehopwoodforex.com/phpBB3 ... f=6&t=5612 My Strategy so far: Nothing special, simple is usually best. My thoughts have been to try hedging 2 pairs that are: - relatively well correlated to reduce risk. - Have high swaps to make the trade worthwhile. - Have a differential in the swaps that determine which pair is traded long or short. The idea is to hold the hedge long enough to earn decent swap (I'm imagining 1-4 weeks) whilst mitigating larger moves in the pairs. Looking through the pairs offered by my broker, I have noticed the following 2 that should work if my maths is correct: USDTRY = long swap of -368, short swap of +222 EURTRY = long swap of -525, short swap of +400 So my understanding is that if I go long USDTRY I am paying -368 per day, and short EURTRY at +400 per day, giving a net positive swap of +32. The correlation between these pairs is pretty good and there's a good chance movement will be mitigated. I will be running this trade on demo for a few weeks to see how it pans out, but in the meantime I would appreciate any criticisms of the initial plan. My own criticism so far would be that correlation is not a guarantee of hedging success, and even less so with exotic pairs. There are times when these two diverge, but over a few weeks this looks to iron out when eyeballing the charts. |
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| Author: | JonCodesBad [ Wed Feb 27, 2019 11:22 pm ] |
| Post subject: | Looking for some advice on hedging positive swap trades |
Just adding a few thoughts which may help. What are the Pip values of a chosen pair(£$/Pip) If price rises or falls, does the £/Pip increase or decrease? What is the Interest rate and inflation of the individual currency's? Are they trending up or down? Do you think a certain Country is likely to hike or chop it's interest rate? |
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| Author: | tomele [ Thu Feb 28, 2019 12:49 am ] |
| Post subject: | Looking for some advice on hedging positive swap trades |
Hi guys. You guys must realize that you have entered a net position in EURUSD. In your case a short position. That may work or may fail epically. The moves in this pair can override your theoretical swap benefits by magnitudes. Even assuming those swaps would be constant (they are not and can change every second). Carry trades are the game of real big guys. You will need to sit this out for months and years and you must be absolutely sure how things will evolve over time. You are betting against economies, you know? Just saying. If things were this easy, we would all be millionaires. Cheers Thomas |
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| Author: | Jamesmsv [ Thu Feb 28, 2019 7:01 am ] |
| Post subject: | Looking for some advice on hedging positive swap trades |
Thanks guys, this is exactly the reason I asked for help , I had not considered some of these factors. I am particularly annoyed with myself that I did not see the net EURUSD position inherent in that example, for instance. I also had not considered what might happen overnight once a country changes its interest rate, so I am grateful to you both for these inputs. I think my capital will be better employed in my proven day-trading systems , but I will keep my demo trades open for a few months just to see what happens, you can never have too much data to play with. |
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| Author: | Jamesmsv [ Fri Mar 01, 2019 4:50 pm ] |
| Post subject: | Looking for some advice on hedging positive swap trades |
Wow - I got to see these exotics in action for the first time this week as I had stayed away from them before. Luckily it was on demo, and I will be staying away permanently. The general idea of the trade worked out ok in theory, but was only netting around £1.50 a day in swap. The pairs were offsetting each other as expected until Statistics Canada accidentally released their GDP figure early - and it was poor to boot. This caused an atypical spike in USDCAD which carried over to USDTRY and took out my 1500 point stop! A classic example of the unexpected biting me in the behind. With a daily ATR of 180, I had expected to be in the trade far longer than 2 days. Granted I didn't monitor the trade as if it was real money, the idea was to let it ride and see what happened. In hindsight I should have left out the stop, it was done out of habit really and I thought an 8x Daily ATR was very conservative. The hedge did its job, but the experience has put me off this idea for now, I have no desire to trade strategies that are this risky. Lessons learned: - These obscure pairs can move much more wildly than the usual suspects, and if you're used to the majors then 'much more wildly' is even more than you think... then double it. - The advice in the prior posts is correct, this is a very risky strategy with virtually no pay-off, at least in the short term. - always demo trade new strategies even if it's just to see if it suits your trading style - this one didn't. |
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