Zero positive carry interest income when trading forex futures?

[learner88]

When trading spot fx, the trader gets paid interest income if the forex pair enjoys positive carry interest. If the trader trades forex futures instead of spot fx, he does not receive any interest income.

If this a major disadvantage when trading forex futures? For fx pair that enjoys positive carry, is it more profitable to use spot fx instead of futures?

 

[sle]

If this a major disadvantage when trading forex futures? For fx pair that enjoys positive carry, is it more profitable to use spot fx instead of futures?

Well, why don't you then go long the spot "fx pair that enjoys positive carry" and hedge it with futures? That would be a free lunch, right?

 

[learner88]

Well, why don't you then go long the spot "fx pair that enjoys positive carry" and hedge it with futures? That would be a free lunch, right?

I'm a bit slow. I don't quite catch what you mean. If I want to reduce risk by hedging with futures, I can simplify things by employing a smaller position size in the spot fx position. It's not necessary to complicate matters by hedging with futures. I'm a small player.

 

[sle]

I'm a bit slow. I don't quite catch what you mean. If I want to reduce risk by hedging with futures, I can simplify things by employing a smaller position size in the spot fx position. It's not necessary to complicate matters by hedging with futures. I'm a small player.

I am hinting at the fact that futures price includes the interest rate differential (*), so unless you are somehow funding funny, the two are equivalent

* well, that and the xCcy basis

 

[learner88]

I am hinting at the fact that futures price includes the interest rate differential (*), so unless you are somehow funding funny, the two are equivalent

* well, that and the xCcy basis

Thanks. That is the answer.

One more question if you don't mind. Do futures generally pay higher interest rate differential compared to forex brokers who may decide to take a cut of the interest income?

 

[sle]

Do futures generally pay higher interest rate differential compared to forex brokers who may decide to take a cut of the interest income?

Can't say I have any first-hand experience, but I would imagine that smaller FX brokers pay less for overnight swap (as part of their business model, aka fuck the client).

 

[Sig]

Thanks. That is the answer.

One more question if you don't mind. Do futures generally pay higher interest rate differential compared to forex brokers who may decide to take a cut of the interest income?

Sometimes you can find one who is lazy updating their rates and find a stale favorable rate, but it's hard to arb because you have to keep moving money between the forex and real broker accounts as the prices move. The transaction costs and delays quickly eat up any arb profits and they catch on after about the second sizable transaction.