Cost of Carry - How difficult to hold long term?

[garfangle]

Although most spot forex trading is either intraday or at most a few days, it seems the best bet to get appreciable gains (momentum) is through a longer term perspective (at least a few months).

However, one major deterrent to this style of trading, especially if using high leverage, is either the requirement to complete the trade within a few days of the execution or the high cost of carry to hold the trade position, likely at least a few pips per day. Moreover, if during that holding period the trade goes against you, you must add funds to meet the margin or else the trade is liquidated.

For instance, if you held a USD/CAD sell trade since last Dec. 1 @ 1.5587/91 (close) to Jun. 29 1.3472/78 and w/ 100:1 leverage, one lot ($100K) would have netted you 2109 pips or dollars on a $1000 investment. It would be a gain of 210.9% in just 7 months if you were so lucky.

Most firms would charge you 5 pips per day to carry over the trade (excluding margin hits) for a total cost of 875 pips or dollars (5x25x7). Thus, your return would be only 123.4%. Still excellent but not worth the risk as most currency moves over this span are not this large or this beneficial/lucky.

Is there an ideal way to forex trade longer term than this proposition?

 

[shellback]

I don't think swaps are 5 pips a day. I haven't had a USDCAD long overnight for a while. The last time was January, the swap then was less than 0.9 pip a day.

 

[shellback]

Misread your post. If you were holding USDCAD short since Dec, then you should have earned many pips in the daily swaps, not paying them.

 

[jiacopel85]

garfangle,

If you shorted 1 lot of USD/CAD back in Decemeber and gained 2109 pips, you would would have made about $15606.60, not $2109. One pip on the USD/CAD is worth about $7.40. A 1460% profit in 7 months is not bad IMO.

 

[garfangle]

Quote from jiacopel85:

garfangle,

If you shorted 1 lot of USD/CAD back in Decemeber and gained 2109 pips, you would would have made about $15606.60, not $2109. One pip on the USD/CAD is worth about $7.40. A 1460% profit in 7 months is not bad IMO.

Sorry, my bad...I did not convert the XR.

Anyways, my argument seems still valid. That instead of intraday scalping, it would be better to only trade when major trends occur and hold, than try to squeeze the market every day.

 

[izeickl]

Quote from garfangle:

Although most spot forex trading is either intraday or at most a few days, it seems the best bet to get appreciable gains (momentum) is through a longer term perspective (at least a few months).

However, one major deterrent to this style of trading, especially if using high leverage, is either the requirement to complete the trade within a few days of the execution or the high cost of carry to hold the trade position, likely at least a few pips per day. Moreover, if during that holding period the trade goes against you, you must add funds to meet the margin or else the trade is liquidated.

For instance, if you held a USD/CAD sell trade since last Dec. 1 @ 1.5587/91 (close) to Jun. 29 1.3472/78 and w/ 100:1 leverage, one lot ($100K) would have netted you 2109 pips or dollars on a $1000 investment. It would be a gain of 210.9% in just 7 months if you were so lucky.

Most firms would charge you 5 pips per day to carry over the trade (excluding margin hits) for a total cost of 875 pips or dollars (5x25x7). Thus, your return would be only 123.4%. Still excellent but not worth the risk as most currency moves over this span are not this large or this beneficial/lucky.

Is there an ideal way to forex trade longer term than this proposition?

I dont know which company is charging you 5 pips per day for carrying over but ditch them fast. The -only- thing you should incur is interest charges (i.e if the difference between the two interest rates for the pair you are trading, which will either be for or against you)...
E.g CMS Forex has the following:

"e) Overnight Interest/Rollover:

2,5 times bigger than the average market overnight interest/rollover charge for trading with standard 100K contracts. Overnight Interest/Rollover is automatically paid to a client's account after buying a currency with greater Interest Rate in its country, and charged to a client's account if the country issuing this currency has smaller Primary Interest Rates. "

As I have mentioned in other threads here, Long term trading is the way to go for ForEx (at least IMHO), yes there is large movements within the day which can make you a great deal of money, but its hard work trying to catch the somtimes extreme price changes. I go long term (long term meaning 1/2 days too months)...

My post in this thread explains more how I do it

http://www.elitetrader.com/vb/showthread.php?s=&threadid=19176&perpage=6&pagenumber=3


It depends on how much you want to make and your risk taking as I mention in my post.