Interest rate differentials

[bbjit]

I want to bounce of this idea of all the old hands on the forum :

Whatif you open a small position without a stop in any currency pairs that pay more than 2% interest on your positions such as the GBP/JPY which at my broker pays 2.94% currently and USD/JPY pays 2.47%.

The idea is that you take the 80 monthly ATR and then you average down IF the price move against you that much... and never take the position down for a few years...


I also know the biggest drawdown is that if one looks at the GBP/JPY cross on the last ten years it has fallen from 570 at its peak to a low of 128 so that gives you a difference of a 442 BIG numbers in the red with the atr on average 8 - 10 one looks at more or less 55 to 44 lots IF you bought right at the top and would need just on a mini account in the region of $ 39000 to $40000, is this worthwhile if one can stand this amount of "heat" for a long time.

I know there is a lot of whatif scenarios but can you share your thoughts on this please...

Regards

[MickMason]

Originally Posted by bbjit

I want to bounce of this idea of all the old hands on the forum :

Whatif you open a small position without a stop in any currency pairs that pay more than 2% interest on your positions such as the GBP/JPY which at my broker pays 2.94% currently and USD/JPY pays 2.47%.

The idea is that you take the 80 monthly ATR and then you average down IF the price move against you that much... and never take the position down for a few years...


I also know the biggest drawdown is that if one looks at the GBP/JPY cross on the last ten years it has fallen from 570 at its peak to a low of 128 so that gives you a difference of a 442 BIG numbers in the red with the atr on average 8 - 10 one looks at more or less 55 to 44 lots IF you bought right at the top and would need just on a mini account in the region of $ 39000 to $40000, is this worthwhile if one can stand this amount of "heat" for a long time.

I know there is a lot of whatif scenarios but can you share your thoughts on this please...

Regards

Hi bbjit

My immediate thought would be don't do it, but having said that if your pockets are deep enough and you get in at a reasonable level then why not, you get the rollover and the potential for profit....but then again, with a 100k account wouldn't you be better off in a high yield investment with guaranteed returns where your money is safe?

It will be interesting to hear some other views.

Mick

[psytrader]

What type of leverage are you considering?

[bbjit]

PSY at this moment in time 100:1 and do not know how 400:1 or to the other scale 50:1 will effect this.

The margin requirements would be less for 400:1 but the inverse affect would be a greater amount of money in the account.

[MickMason]

100:1, 400:1

lol, carry on mate.....


Mick

[bbjit]

I won't take this comment personal Mick, I was asking for a few ideas and not to be ridiculed, I know full well what the dangers of this sort of strategy holds.

One needs to think outside the box a bit this is a VERY LONG investment strategy.

Can you make more constructive comments instead of :

Originally Posted by MickMason

100:1, 400:1

lol, carry on mate.....


Mick

[MickMason]

Originally Posted by bbjit

One needs to think outside the box a bit this is a VERY LONG investment strategy.

I already made a constructive comment, didn't you see it?

Thinking 'outside the box' is one thing, leveraging an account 400:1 on a trade without stops in order to earn the interest rate differential on rollovers is a bit more than 'outside the box'!

You wanted people to share their thoughts and I've shared mine, sorry if it doesn't fit in with what you wanted to hear.

Hey, it's your money, you spend it any way you like!



Mick

[psytrader]

I think that that type of leverage has its uses in the spot trade, and in real estate.

My suggestion, albeit untested, would be something more like 2 to 1 on a governmet secured bond of some sort in the UK. Skip the forex broker and do the real deal through a bank. Then again, I dont have any contacts at the bank of Japan so I cant help there.

When you use a broker youre buying a contract not the actual currency. When you have the actual currency on a bank wire and things go sour with the exchange rate. You will still have your real sterling to look for a new investment in the FTSE or some other method inside the UK.

EhhHem,...in short,...keep your currency real for longer term investments. If you get caught in a position where your cable cant leave the UK without losing value. You can still find an alternative cable denominated investmet to continue to grow with.

I like your thinking a lot. It is the stuff that wealthy people are made of. Find a cheap source of money and combine it with moderate returns. Warren Buffett started his fortune by harassing his family and friends to give him money to invest and then split the profit 20/80. The friends and family spent the 80 and he reinvested the 20,...the rest is history.

If foerx isnt the way to make it happen. Its not the end of the world, just the start of the search for a new source.

Keep us posted.

Regards

PSY