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Chapter 26, Part II. Should We Rely on Carry Solely? Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 26, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Commander in Pips: Ok, here is easy example. Let it be the same AUD/USD. For simplicity we assume that rate at open date was 1.0 as on the close date. Let’s assume initial margin with the position is 5K USD. Then, day trader position will be 5000*100 = 500,000 USD at 4.25% annually of carry. While weekly trader position will be just 5000*3 = 15,000 USD. The first trader holds is for 7 days and earns: 500,000*4.25%*7/365 = 407.53$, while second trader holds it 3 months: 15000*4.25%/4 = 159.37 USD. See – depending on margin, carry could give more significant impact on one account, at the same term of position holding.

    Pipruit: Oh, I see.​


    Commander in Pips: But anyway this should be relatively medium term trade with average leverage to treat carry impact as valuable. So, initially you have to make such kind of calculations and then decide – to be worry with carry or not to be…This is first.

    Pipruit: Second….​


    Commander in Pips: Since we’ve just estimated that carry value is important mostly for long term trades, this forces us to dive into the Fundamental analysis pool, since long-term trends are driven mostly by fundamental factors.


    Pipruit: How does it deal with carry?
    Commander in Pips: What is a carry? In fact, this is a rate difference. Hence it depends on the interest rate in each country. For you it will be most important rates in countries of particular pair, say AUD/USD. As we’ve discussed earlier, rates could be increased or decreased by central bank in different economic environments. But this is only half of the puzzle. The second half is the overall condition of the world economy. In fact possessing on the carry is a question of economic cycles.
     
    #1 Sive Morten, Dec 26, 2013
    Lasted edited by : Oct 3, 2016
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