UPDATE:
Well, I've held this position now for over 12 hours (positions opened on 10/12/06 at 10:54AM CST). The results have been interesting, to say the least, but not exactly surprising.
The Eur/Chf had been a range of 1.5914 to about 1.5927. The Eur/Jpy and Chf/Jpy have been in near stasis as well, though around 1PM CST, both Yens experienced a major dip. As it stands now, the Eur/Chf is nearing the lower end of the range it has been in for the past 10 hours or so.
I'm not sure how to post images on here, otherwise I would be posting the positions and history. So, please allow me to simply type it up.
As it stands now (1:07 AM CST), the synthetic long Eur/Chf is neither making money or losing money by any significant amount. Breaking down per leg, the long Eur/Jpy is down 4.9 pips, while the short Chf/Jpy, it is up 4 pips. The two have moved away where one was doing better than the other, but they seem to not last long. The real Eur/Chf short position is down 12 pips. The two Yens seem to cancel each other out.
Quick breakdown
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long synth Eur/Chf = + .2 pips
short real Eur/Chf = - 12 pips
My take
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I have yet to see the synth "hedge" against the real position, or vice versa. If anything, Eur/Jpy and Chf/Jpy tend to move more in sync where they almost cancel each other out, better than say a trade involving Eur/Usd & Usd/Chf! I remember seeing positions where I am holding the Euro and the Swiss (both against the US Dollar), and where say the Euro would move up or down a given percentage like 1-2%, the Swiss would not reciprocate in the same fasion. I've had trades were the Swiss OR the Euro would essentially take its time while the other moved.
On the interest rate front, I found something really interesting. Now I use Oanda, so these numbers reflect what they are borrowing and lending rates are at. Using their calculators (which are free) the cost of selling the Chf/Jpy is 2.05%, while the Eur/Jpy trade will get you 2.48%, the net being an interest rate of 0.43%. The Eur/Chf trade is currently costing me 1.65%, so really the trade is a net negative in the interest rate department!
Not much, if you ask me. But then I ran the numbers against the margin used. The margin, being at 50:1, the Eur/Jpy trade for 6000 units the margin is $150.35. The Chf/Jpy margin requirment for $94.43. The total margin on the synth trade is $244.78. The Eur/Chf margin is 158.49. Total margin equals $403.27.
Frankly, if one wanted to do a simple carry trade, you're better off avoiding the real Eur/Chf trade! Using the calculator on the synth trade, and assuming I'm correct in my figures, the interest you could collect on an annual basis against margin required, would be about 36%. After a year of collecting interesting, the synth trade would earn $86.64347, which on a margin requirement of $244.78 equals 36%.
I will keep you posted on this crazy trade. Bon chance everyone on your trades!
