Is Annual 15% Riskless Return Possible?

[carrer]

First, the swap might diminish your profit.
Second, have you considered commissions? The more leverage you use, the more commissions you pay.

Why not you park your money in third world countries banks.
eg. Kazakh c.bank = 12 percent.

 

[Turveyd]

They'd just cancel each other out, I guess Spot pay you a + swap fee, the Futures account doesn't charge you a negative 1 so there is your profit I guess.

Commisions on both about 6days of swap payments I guess ??

 

[Scataphagos]

Hello!

I'm fairly new to futures trading (and I've never traded in the FX spot market), but I recently came up with a trading idea that I wanted to run by the Elite Trader forum to see if someone can comment on the idea.

This strategy involves buying a currency (euro in this example) in the FX spot market, and immediately selling out a future to lock in the sales price today. The theoretical return is simply the risk free rate, but due to leveraged nature of these products, this "risk free return" also seems to be magnified. The system would note permit me to attach an excel spreadsheet, so please follow the link below to view the excel file for examples from different dates of how this strategy could be implemented.

https://www.dropbox.com/sh/tf9gn15s83wusvr/AADuarcNPR1AW6BvCWENWwmSa?dl=0

My questions on this strategy are as follows:

• Are my calculations correct or are my margin requirement estimates off? If off, how much margin would I need to set aside to run this strategy?
• What kind of management would be required to effectively implement this strategy?
• At the end of the contract, would the short euro future settle and make you sell your long FX position (basically at the futures expiration, would the trade completely unwind itself naturally)?

Thank you and happy trading!

Bobby Roberts

The "riskless return" is the coupon rate in T-Bills (presuming the U.S. Government is not going to default before your bills mature.) ANY higher return than that involves at least some degree of risk.

 

[Daal]

OP,
how are you going to lever up on FX spot EUR without paying a lot of interest to borrow the other currency?

 

[destriero]

Pure arbs are always about rates. Therefore the risk of any rates-arbitrage (conversions, boxes, rolls, cash) involves (rho in options) risk to rates/rate-vol over the duration of the contract (mostly opportunity cost and MTM depending on the structure of the arb). There is no convexity to leverage, but yes, you trade it as large as capacity, capital and rate-risk will allow.

This is one of the most basic arbs in existence. To assume that is is not ran every 20ms by every MMer trading in these products in silly.

 

[bone]

To OP: No.

 

[jk90029]

In theory, annually compounded 15% growth, for 40 years (from 30 to 70), shall give you
1.15^40 = 267.8635 =260 times. For example, if one start with seed of 10K at the age of 30, he should have 2.6M at the age of 70.

If you live ten more years to 80, then 1.15^50 = 1083.657 = 10.8M. Therefore there should be some suckers anywhere who lose more than 10M.

Please note that making 1000 times is almost same as finding 999 suckers in the markets. If you are as smart as one in plain 1000 persons, it might be possible.

ARE YOU?

PS) With tax and commission, probably more than 1000 persons.

 

[jk90029]

Furthermore, if Buffet's claim for compounded 20% for 45 years is true, then 1.2^45 = 3657.262 =4000 times might be the best attainable.

 

[bone]

The "riskless return" is the coupon rate in T-Bills (presuming the U.S. Government is not going to default before your bills mature.) ANY higher return than that involves at least some degree of risk.

Spot on. Any point contrary is pure unadulterated BS.

 

[destriero]

Spot on. Any point contrary is pure unadulterated BS.

Wrong. I've traded, and seen people trade debit verticals (1x1s) at zero many times on a single ticket. This also belies any basic rates arbitrage like conversions, boxes, etc. I've done dozens of boxes at implied rates on European ops at up to 8x LIBOR. Stating it is "BS" abrogates ANY arbitrage, which is, BS.