interest hedge strategy - futures and forex
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Thread: interest hedge strategy - futures and forex

  1. #1
    For those people excited to prove on what I am going to write, wrong, go for this that's what I am looking for, theres a 1% chance of this being a viable egy but I guessed I'd give it a shot.

    Now from what I have been told currency futures do not pay/charge interest (matter #1 I could be wrong about). . .Now I really don't exchange futures but from seeing some charts I found that the movements on futures pairs compared to spot pairs are identical (thing #2 I could be wrong about). . .So then open a dishonest sharia account that will immediately shut you down, why dont we hedge our transactions using a futures account? Ex: Long GBP/JPY in our interest paying account, and Brief GBP/JPY in our futures account to cancel the profit/loss and accumulate the attention.

    My Query: I understand that this is a much discussed subject with non-interest paying accounts or sharia accounts, however I need to know whether it's possible to perform this using a futures account.

  2. #2
    Quote Originally Posted by ;
    For the folks very excited to show wrong on what I am about to write, choose it that's what I am searching for, theres a 1% probability of this being a workable egy but I guessed I would give it a shot.

    Currently from what I've been advised currency futures do not pay/charge curiosity (thing #1 I might be wrong about). . .Now I really don't exchange futures but from seeing some charts I discovered that the movements on futures pairs in contrast to spot pairs are equal (thing #2 I might be wrong about). . .So then open a shady sharia account which will shut down you, why dont we hedge our trades using a futures account? Ex: Long GBP/JPY within our interest paying account, and Short GBP/JPY within our futures account to cancel the profit/loss and accumulate the attention.

    My Query: I understand that this is a much discussed subject with non-interest paying accounts or sharia accounts, but I want to know if it is possible to perform this using a futures account.
    The thing to consider is Spot is Todays price and Futures is in the future....Though they might move close I doubt they proceed in tandem....but remember the spreads invovled in Spot, along with also the spread ( while little ) plus the commission in Futures...I would always keep a watch out for the nearest expiry month.

  3. #3
    It is a fantastic egy and many people do this. But I should say that the price don't move EXACTELY (spelling wrong I understand ) the same, but you sure can make profit from this

  4. #4
    Take a look at the futures price and the spot price. You will notice there is a difference in the prices; this difference is the interest rate . The interest you receive on your place trade should just (barring tiny mis-pricings) by off-set from the premium (that is why stocks do not pay attention ) of the futures contract, which will move to zero expiry.

  5. #5
    I am pretty confident in stocks there are no pairs just single currencies, you can be long yen, yen that is short or lengthy gbp gbp but not long gbp/jpy, that is the spot market. Could be wrong

  6. #6
    I think the charge to maintain open a futures contract is pretty high. And you are not an idoit. Thank you for trying

  7. #7
    I read by one of ff's members he used this egy, but instead of futures contracts, he said he used a broker which dind't charged interest rate. What I recall is that he said he didn't use it , and that he had to periodicly cable money from 1 account into another.

  8. #8
    What Faure said is just right. Over the course of a contract period for futurescontract, the% change is going to be a few %off from spot. I will reveal to you with some basic charts.

    The first chart is that the futures contract for Japanese Yen. Although there are currency pairs in stocks, they typically have low volume so it is much better to trade (out of what I presume ) to trade the single currencies. The first chart is YEN/USD in stocks, not USD/JPY(YEN).

    1: http://charts.barchart.com/chart.asp...=XSTKICorg=stk

    This next chart is the USD/JPY in Foreign Exchange within Precisely the Same Period of Time.

    2: http://charts.barchart.com/chart.asp...=XSTKICorg=stk

    You will observe the big bummer, futures is 3% down (the one you would brief ), while Foreign Exchange is just 1% up (the one you would long). So over the course of this time range, you're up 1 and down 3% on your futures. It makes up for the interest gap.

    In the event that you wanted to get creative and a little more risky you could attempt to utilize CAD/JPY and Crude Oil for a hedge?

    Crude: http://charts.barchart.com/chart.asp...=XSTKICorg=stk

    CAD/JPY: http://charts.barchart.com/chart.asp...=XSTKICorg=stk

  9. #9
    Quote Originally Posted by ;
    What Faure said is exactly perfect. Over the course of a contract period for futures, the % change will be a few %s off from spot. I will show you with some basic charts.

    The first chart is that the futures contract for Japanese Yen. Although there are currency pairs in stocks, they typically have low quantity so it is better to exchange (from what I assume) to trade the only currencies. The first chart is YEN/USD in stocks, maybe not USD/JPY(YEN).

    1: http://charts.barchart.com/chart.asp...=XSTKICorg=stk

    This next chart is the USD/JPY in Currency Market over Precisely the Same Period of Time.

    2: http://charts.barchart.com/chart.asp...=XSTKICorg=stk

    You will notice the major bummer, futures contract is 3 percent down (the one you would brief ), whilst Currency Market is just 1% upward (the one you want ). So over the course of this time range, you're down 3 percent in your own futures and up 1. The interest gap is made up for by it.

    In the event that you wanted to get creative and a bit more risky you could try and use CAD/JPY and Crude Oil for a hedge?

    Crude: http://charts.barchart.com/chart.asp...=XSTKICorg=stk

    CAD/JPY: http://charts.barchart.com/chart.asp...=XSTKICorg=stk
    Thanks alot Stockkjay for its detailed Reaction. I also have done some research of my own and see. . I noticed that while the percentage gap is that there, it stays near the same as price goes (ex: when it is a 3% gap today it will be near a 3% gap later on ). So (using your example with the USD/JPY) is it possible to cut our futures account by 3 and then create virtually no profit/loss or at least not enough to eat in the curiosity profit?

  10. #10

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