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new meat - help on yen
- Thread starter niceneasy
- Start date
my question is regarding currency pairs
specifically, i am looking to buy, go long, the yen
i have quotes
jpy/usd cash quoted at 117.89
and usd/jpy cash quoted at .008529
these seem to be quoted opposite to any other currency pairs in charting packages etc....
so if i am speculating that yen will go up and usd down - which one do i buy?
specifically, i am looking to buy, go long, the yen
i have quotes
jpy/usd cash quoted at 117.89
and usd/jpy cash quoted at .008529
these seem to be quoted opposite to any other currency pairs in charting packages etc....
so if i am speculating that yen will go up and usd down - which one do i buy?
If you think the Yen will appreciate in value, you would sell the USD/JPY pairing.
DRT
DRT
As DRT indicated, one option for you would be to enter an order to SELL a certain USD amount of "JPY/USD Cash USD.JPY" (Underlying = USD), quoted at 117.xx. That's the cash forex dollar/yen pair at IB.
Option #2 would be to enter an order to BUY 1 or more of "JUN06 Futures 6JM6" (Underlying = JPY), currently quoted at 0.0086yy. That's the Globex Yen future contract. (There's also one on EUREX.)
Option #3 would be to express your long-term dollar / yen view via options. Sounds like you want to keep it simple, though, so let's leave that one off the table for now...
Normally, for a long-term play, you'd want to deal in cash, not futures -- everything else being equal, which it is here, with the same broker. First, no worrying about rollover 4 times a year. Second, more flexible trade sizing and ability to scale in or scale out.
However, there's more to it than that. As usual, devil's in the details... Before you take the plunge, are you fully aware of the interest costs? Short USD / long JPY is a reverse carry trade. It'll cost you dearly at IB. Right now, you'll pay 6.295% on the USD part (up to $100,000) and you'll also pay (rather than get paid) from 0.439% to 0.189% on the JPY part, for a total of 6.5%+ annual drag. See this for details.
So, let's say, your directional forecast turns out to be correct. If you were to hold this position for a year, and yen ends up at, say, 106 (a nice 10% appreciation against the dollar), your total return would be only about 3.5%. That's ignoring any further widening of the interest rate differential (IRD), yet to come this year. And before taxes, if any.
To be fair, that % return is applied to the (leveraged) position size, not your account balance. E.g., with 5:1 leverage, you'd make around 17.5% total return in that (good case) scenario, before any taxes.
On the other hand, if you were to put on this position via futures, not cash, the implied IRD would still work against you, of course, but at a more reasonable 4.5% or so, currently. That's an extra 2%+ a year unleveraged, or extra 10%+ P&L at 5:1, and so on. If that matters to you, you need to weigh that extra futures P&L against the cash advantages for this purpose, mentioned above. Your intended 1) position size, 2) leverage and 3) time frame would be the key factors in a decision of cash vs. futures as the best tool for the job. Feel free to post them here, for more specific advice. Have fun.
Option #2 would be to enter an order to BUY 1 or more of "JUN06 Futures 6JM6" (Underlying = JPY), currently quoted at 0.0086yy. That's the Globex Yen future contract. (There's also one on EUREX.)
Option #3 would be to express your long-term dollar / yen view via options. Sounds like you want to keep it simple, though, so let's leave that one off the table for now...
Normally, for a long-term play, you'd want to deal in cash, not futures -- everything else being equal, which it is here, with the same broker. First, no worrying about rollover 4 times a year. Second, more flexible trade sizing and ability to scale in or scale out.
However, there's more to it than that. As usual, devil's in the details... Before you take the plunge, are you fully aware of the interest costs? Short USD / long JPY is a reverse carry trade. It'll cost you dearly at IB. Right now, you'll pay 6.295% on the USD part (up to $100,000) and you'll also pay (rather than get paid) from 0.439% to 0.189% on the JPY part, for a total of 6.5%+ annual drag. See this for details.
So, let's say, your directional forecast turns out to be correct. If you were to hold this position for a year, and yen ends up at, say, 106 (a nice 10% appreciation against the dollar), your total return would be only about 3.5%. That's ignoring any further widening of the interest rate differential (IRD), yet to come this year. And before taxes, if any.
To be fair, that % return is applied to the (leveraged) position size, not your account balance. E.g., with 5:1 leverage, you'd make around 17.5% total return in that (good case) scenario, before any taxes.
On the other hand, if you were to put on this position via futures, not cash, the implied IRD would still work against you, of course, but at a more reasonable 4.5% or so, currently. That's an extra 2%+ a year unleveraged, or extra 10%+ P&L at 5:1, and so on. If that matters to you, you need to weigh that extra futures P&L against the cash advantages for this purpose, mentioned above. Your intended 1) position size, 2) leverage and 3) time frame would be the key factors in a decision of cash vs. futures as the best tool for the job. Feel free to post them here, for more specific advice. Have fun.
ack. sorry - im still foggy... just about the interplay of terms usd/jpy and jpy/usd.... they seem to be used interchangeably which i dont understand as one is 1.17 and other is .008529. I am an old guy so the hamster doesn't run as fast on the wheel as he used to!
jpy/usd cash quoted at 117.89
and usd/jpy cash quoted at .008529
if i sell jpy/usd cash quoted at 117.89 = effectively long yen/ short us dollar?
what about buy usd/jpy cash quoted at .008529?? = long yen?
and 2. - you are paying interest on these trades even if you have the cash to cover them in your ib account?
late apex - i am thinking about buying 50k in yen. holding time of 5 years say. i don't need or want to pay interest for margin
thanks again for replies
jpy/usd cash quoted at 117.89
and usd/jpy cash quoted at .008529
if i sell jpy/usd cash quoted at 117.89 = effectively long yen/ short us dollar?
what about buy usd/jpy cash quoted at .008529?? = long yen?
and 2. - you are paying interest on these trades even if you have the cash to cover them in your ib account?
late apex - i am thinking about buying 50k in yen. holding time of 5 years say. i don't need or want to pay interest for margin
thanks again for replies
Correct, the answer is yes to each of your 3 questions.
The instrument "USD/JPY Cash JPY.USD" (Underlying = JPY) quoted around 0.0085 is traded on IDEAL, not IDEALPro. I'd ignore that one, not so much because of much wider spread (16+ vs. 2 pips) on entry and exit -- less important over 5 years -- but because it's neither here nor there... a hybrid mix of cash forex and futures attributes. You probably won't see anything like it at other dealers or quoted in the media.
$50K is worth less than half of a single 6J future contract, so that's not a viable option, unless you're flexible on position size or willing to deal with the E-mini yen future, half the size of 6J.
Question for you: sounds like you've got more than $50K margin for that $50K position, is that correct? That would be leverage of less than 1:1. Are you sure about that? Seems to me, 10% or even 20% (if yen strengthens all the way from 118 to 94) is not a particularly attractive cumulative return over 5 years, pre-tax, even from a passive, buy and hold currency play. You could do as well or better by buying risk-free Treasury notes, with no currency risk, either.
Also, now that we know your parameters, I think another way to monetize your long-term dollar / yen view may be "none of the above". Why not open and fund a separate account, this time with JPY as the base currency?
Better check with IB on the details, but, from what I can tell by looking at that link, a yen-denominated account currently neither pays nor charges you any interest. Do nothing else in that account until you are ready to close it and convert the proceeds back to dollars, a few years from now. At that time, your realized total return will reflect the exact relative change of yen vs. dollar between now and then. (As usual, ignoring taxes, if any.)
The instrument "USD/JPY Cash JPY.USD" (Underlying = JPY) quoted around 0.0085 is traded on IDEAL, not IDEALPro. I'd ignore that one, not so much because of much wider spread (16+ vs. 2 pips) on entry and exit -- less important over 5 years -- but because it's neither here nor there... a hybrid mix of cash forex and futures attributes. You probably won't see anything like it at other dealers or quoted in the media.
$50K is worth less than half of a single 6J future contract, so that's not a viable option, unless you're flexible on position size or willing to deal with the E-mini yen future, half the size of 6J.
Question for you: sounds like you've got more than $50K margin for that $50K position, is that correct? That would be leverage of less than 1:1. Are you sure about that? Seems to me, 10% or even 20% (if yen strengthens all the way from 118 to 94) is not a particularly attractive cumulative return over 5 years, pre-tax, even from a passive, buy and hold currency play. You could do as well or better by buying risk-free Treasury notes, with no currency risk, either.
Also, now that we know your parameters, I think another way to monetize your long-term dollar / yen view may be "none of the above". Why not open and fund a separate account, this time with JPY as the base currency?
Better check with IB on the details, but, from what I can tell by looking at that link, a yen-denominated account currently neither pays nor charges you any interest. Do nothing else in that account until you are ready to close it and convert the proceeds back to dollars, a few years from now. At that time, your realized total return will reflect the exact relative change of yen vs. dollar between now and then. (As usual, ignoring taxes, if any.)
hats off to late apex. a great big thank you for taking the time to help me out. you are very kind to share your insights and in detail too.
i really like this trade the more i research it. there is effectively anywhere from 750 billion to 3 trillion (T) USD in yen carry trade floating around. the implications of this, as i understand them, is a huge potential short covering in the yen. coupled with:
-a weak outlook for the USD
-current account surplus in japan
-BOJ has stopped the printing press and consensus is rates are going up
-general increase in consumer strength and economy as well as increase in prices
could get interesting....
i also understand japan may be in no hurry to raise rates quickly or they could cause a massive mess - but i can see it playing out over the next few years. and at the very least - i own a little less USD which is comforting and ultimately my objective for doing this in the first place....
i'd invite any other ideas/participation if i am missing the mark on any of this...
thanks again apex....
i really like this trade the more i research it. there is effectively anywhere from 750 billion to 3 trillion (T) USD in yen carry trade floating around. the implications of this, as i understand them, is a huge potential short covering in the yen. coupled with:
-a weak outlook for the USD
-current account surplus in japan
-BOJ has stopped the printing press and consensus is rates are going up
-general increase in consumer strength and economy as well as increase in prices
could get interesting....
i also understand japan may be in no hurry to raise rates quickly or they could cause a massive mess - but i can see it playing out over the next few years. and at the very least - i own a little less USD which is comforting and ultimately my objective for doing this in the first place....
i'd invite any other ideas/participation if i am missing the mark on any of this...
thanks again apex....