Futures currency / Spot currency spread trading

smiley486 · Sep 23, 2008

Hi,

Has anyone looked into this? or could also be called pairs arb trading?

Thanks,
smiley486

RapidFireFX · Sep 23, 2008

Yuu can try it but forward rate risk usually puts the brakes on this for most small guys.

rosy2 · Sep 23, 2008

yes. cost of carry

nazzdack · Sep 23, 2008

You won't be able to compete with the big banks in that type of trade.

smiley486 · Sep 23, 2008

I just want to make sure that i am thinking this correctly.

If for example,

I buy 1 ADZ8 (Aus dollar Dec8 contract, $12.50 a point) and sell 125,000 spot AUD/USD with a spread of 70.
And after 1 day i unwind at a spread of 52.

Will this still make money? Or is cost of carry too much for the short AUD/USD trade? How do I calculate the cost of carry?

Thanks,
smiley486

neveragain · Sep 23, 2008

Quote from smiley486:

I just want to make sure that i am thinking this correctly.

If for example,

I buy 1 ADZ8 (Aus dollar Dec8 contract, $12.50 a point) and sell 125,000 spot AUD/USD with a spread of 70.
And after 1 day i unwind at a spread of 52.

Will this still make money? Or is cost of carry too much for the short AUD/USD trade? How do I calculate the cost of carry?

Thanks,
smiley486

the acrued interest that you will pay on aud cash will be higher
than what you get from the future contract
ex: short 100000 aud cash and buy 1 aud future
aud future =100000 us dollars or vice versa

" no free lunch"

smiley486 · Sep 24, 2008

Do you know how to calculate the cost of carry?

PocketChange · Sep 24, 2008

Have you looked at CME's Currency Futures options?

smiley486 · Sep 24, 2008

No i have not looked at it yet. Is it a liquid market? Do you trade CME currency options? Where am I able to trade these?

I was looking into the spread trading of futures and spot currency.

BigFunky · Sep 24, 2008

Quote from smiley486:

Do you know how to calculate the cost of carry?

You could use the interest calculator by Oanda - http://fxtrade.oanda.com/tools/fxcalculators/interest_calculator.shtml

But of course, your actual cost of carry will depend on the particular interest rates that your broker gives you.

The example in your earlier post, wherein the spread reduced from 70 to 52 overnight would have made a net profit of about 12 pips after accounting for commissions, bid/ask spread and interest.