Thread: Hedged Carry Trading

Hey all, as all of us know the carry trades have been a featured attraction of the foreign exchange market and there have been egies for retail speculators like us to make the most of these carry trades. Strategies like opening up accounts with swap and no swap brokers to hedge a pair are known.

The yen pairs have been famed for their correlation between each other and I have been wondering whether it's likely to hedge a pair using a high swap rate GBPJPY per se plus a different one using a low swap rate CHFJPY? And earn the swap differential.

Any mathematicians or individuals capable of calculating the correlations, volatility of both pairs ( for every 2 pips that the gbpjpy rises, the chfjpy rises 1 pip etc) in order to think of a good contract size for hedging?

This http://www.mataf.net/en/forex/trading/shows both correlation and volatility upon which you can base your choices. If you use TradeStation you could plot both parameters directly on your own chart as standard indiors. There is also a correlation function in excel.

Yes, you are able to hedge and gather the gap but you need to be cautious. You already mentioned one of the pitfalls; the hedge may not be 1:1. The next matter is that many brokers keep a bit of your credit but pass on the debit. That errodes your edge and you should ask them how far from theoretical you will be.

A chf/jpy is a hedge into a level. Historically it's provided protection in a major carry trade unwinding and could have caused a margin call through the recent major unwind if leverage has been used. Also, as you are basically buying pounds and sell swiss francs, using precisely the position sizes, it would move with GBP/CHF. I have actually ran this egy on a demo account for a year or so.

Originally Posted by ;

This http://www.mataf.net/en/forex/trading/shows both correlation and volatility upon which you can base your choices. If you use TradeStation you can plot both parameters directly on your own chart as standard indiors. There is also a correlation function in excel.

Very helpful Website, thanks for posting :-)