Currency futures vs currency
- Thread starter dasenbrj
- Start date
No, they need to be fungible for the arb to exist. Trading the future against the cash creates a forward interest rate swap. That becomes your position. The forward swap is not an arb, it's an actual position in rates.
Every major bank in the word trades both, and some central banks, and exploits every minute deviation, so there is no arbitrage opportunity left for small traders (or even most banks for that matter).
There can be rare momentary exceptions when violent moves occur suddenly when one market is closing or some such.
Of course interest rates and varying delivery dates are factored in already.
it would be tough to coordinate execution between a limit order driven exchange like Globex and the fragmented world of spot. Also if an arb is that obvious, why should it still work? Most arbitrage trades have a broader fundamental cause. Easier coin to be made elsewhere IMO.
Correct, when you buy a currency future you are "locking in" the forward interest rate. When you buy spot, you are long the floating rate. It can go up or down. Hence why it's a swap. The arb is done through the interest rate market. If you can trade the 30 day swap at better prices with the spot and the future, you can put that on and then sell the actual swap at a bank to arb the difference. Your p&l will have nothing to do with which direction the currency moves.