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Best broker for carry trades


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Best broker for carry trades

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  #1 (permalink)
new york, ny
 
Experience: Advanced
Platform: NinjaTrader
Trading: eur/usd
 
Posts: 5 since Jan 2011
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For purposes of putting on carry trades, what is the best broker (e.g., which broker(s) have the highest rates/closest to the actual interbank rates with respect to overnight interest)?

Thank you.

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  #3 (permalink)
Legendary Market Wizard
Houston, TX
 
Experience: Advanced
Platform: Trading Technologies
Broker: Advantage Futures
Trading: Energy
 
Posts: 3,559 since Dec 2013
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This seems to be a question that rarely gets a good reply.

I don't trade FX but several months back, after reading a CME research article Adventures in the Carry Trade I was researching the carry trade. One of the things that surprised me is everybody's fascination with bid/ask spreads and none of the other costs. Specifically the unseen cost there can be when trading Forex if you hold positions at all.

Last time I did this analysis the 6E Z/H futures roll was flat which is what you would expect given the interest rate parity. If you put this position on in Forex at Interactive Brokers though somebody who advertises a lot about how great their bid/offers are, they are going to charge you a financing cost of 1.627% to buy USD-EUR and also a financing cost of 1.59% to sell it! (For positions less than $100k for large positions >$200M they still charge 0.59% and 0.62% respectively). Yes they charge you a financing cost whether you buy or sell it! Oanda on the other hand will charge you 0.325% to buy, and nothing to sell.

On some of the more exotic currencies, the bid/offer on the carry charge at Interactive can be as much as 5% (Czech/Danish/Israeli etc). If your holding a position for days or even weeks, the difference in those financing costs far outweigh a tiny difference in bid/ask or commission.

Back to the original posters question, anybody here have a carry trade portfolio and know which brokers offer the best or closest to reality interest rates?

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  #4 (permalink)
West Java
 
 
Posts: 145 since Apr 2014
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SMCJB View Post
This seems to be a question that rarely gets a good reply.

I don't trade FX but several months back, after reading a CME research article Adventures in the Carry Trade I was researching the carry trade. One of the things that surprised me is everybody's fascination with bid/ask spreads and none of the other costs. Specifically the unseen cost there can be when trading Forex if you hold positions at all.

Last time I did this analysis the 6E Z/H futures roll was flat which is what you would expect given the interest rate parity. If you put this position on in Forex at Interactive Brokers though – somebody who advertises a lot about how great their bid/offers are, they are going to charge you a financing cost of 1.627% to buy USD-EUR and also a financing cost of 1.59% to sell it! (For positions less than $100k for large positions >$200M they still charge 0.59% and 0.62% respectively). Yes they charge you a financing cost whether you buy or sell it! Oanda on the other hand will charge you 0.325% to buy, and nothing to sell.

On some of the more exotic currencies, the bid/offer on the carry charge at Interactive can be as much as 5% (Czech/Danish/Israeli etc). If your holding a position for days or even weeks, the difference in those financing costs far outweigh a tiny difference in bid/ask or commission.

Back to the original posters question, anybody here have a carry trade portfolio and know which brokers offer the best or closest to reality interest rates?


You can see here, Forex Brokers Swaps Comparison | Myfxbook

I dont know about IB or Oanda, but never heard/ experience about financing cost on the other broker ... few weeks ago i closed my multi-month (3 Month) position ... just paying the usual comms.
Is there any requirement for that to happen ??? holding period maybe ???


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The following user says Thank You to Thxo for this post:
 
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  #5 (permalink)
Legendary Market Wizard
Houston, TX
 
Experience: Advanced
Platform: Trading Technologies
Broker: Advantage Futures
Trading: Energy
 
Posts: 3,559 since Dec 2013
Thanks: 2,839 given, 6,661 received

Thanks @Thxo

At first glance this seems like an amazing resource but after further analysis I'm not so sure. For example take a look at this image that compares Onada and CitiFX for AUD/JPY (a popular carry trade) and EUR/USD (one of most liquid pairs in the world). While both are apparently quoted the same way (Type 0 - in pips) I would actually question whether that is the case.


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  #6 (permalink)
australia
 
Experience: Beginner
Platform: NinjaTrader
Trading: -
 
Posts: 303 since Sep 2010
Thanks: 123 given, 138 received

Thxo, I can know which broker are you using?

It seems that forex.com and fxcm are not charging anything for holding positions over long term, is that true?


Thxo View Post
You can see here, Forex Brokers Swaps Comparison | Myfxbook

I dont know about IB or Oanda, but never heard/ experience about financing cost on the other broker ... few weeks ago i closed my multi-month (3 Month) position ... just paying the usual comms.
Is there any requirement for that to happen ??? holding period maybe ???



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  #7 (permalink)
Legendary Market Wizard
Houston, TX
 
Experience: Advanced
Platform: Trading Technologies
Broker: Advantage Futures
Trading: Energy
 
Posts: 3,559 since Dec 2013
Thanks: 2,839 given, 6,661 received

I'm not currently actively trading currencies. I would like to look at constructing a carry portfolio but have run into two road blocks
1) Lack of consistent historical data to be analyzed, to pick/rotate an uncorrelated portfolio.
2) Lack of broker that has interest rates/rollover that accurately represent current central bank rates. (As mentioned in that CME research that I linked above, the futures roll in the CME futures should accurately represent this but in reality the lack of liquidity outside of the prompt month means you cannot capture it.)

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  #8 (permalink)
Sydney Australia
 
Experience: Intermediate
Platform: Saco
Trading: Forex, Rates
 
Posts: 1 since May 2013
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Hi smcjb. The fx swap market won't reflect the cash rates of the central bank. First you will have the rate expectations built in via the ois market then the bill ois spread representing the bank credit. The other piece is the cross ccy basis...this is the piece that will see the implied funding cost of the ccy via the fx swap deviate from the cash yields on the two CCYs. There is quite a lot of fx fwd point data out there but to make it useful you then need the get the cash rates , I,e bank bill rates, then imply the other ccy yield gven you know the day run and fx fwd points.

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