Is it possible to receive leverege for a “forex carry trade”?
Oriel B asked:
What would be the terms of the leverege? I was thinking about investing 1000 USD and use leverege from some broker firm, put that money in some country with a hight interest rate, and “protect” myself by using “forward exchange contracts”. What do you think?
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What would be the terms of the leverege? I was thinking about investing 1000 USD and use leverege from some broker firm, put that money in some country with a hight interest rate, and “protect” myself by using “forward exchange contracts”. What do you think?
www.forex-registration.com - Helping you win at forex
Great Forex Broker Resource
You have to have some risk in the trade, otherwise you can’t make any money.
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All FX contracts are leveraged at about 10 to 1. If you used your $1000 to buy currency, you would have $10,000 worth of exposure. If your trade drops by around 5% you will either have to put more money in the account or it will be closed out.
An example of this trade is you can take your dollars and buy the Brazilian Real (BRL) which has an interest rate of 13%. To protect yourself you buy a 1 year forward contract, well guess what, the forward contract is priced at 13% so you will break even (minus trading fees).
You can take advantage of the forward curve (this is what forward rates are at the moment in countries such as brazil, indonesia and turkey as their forward rates are pricing in high interest rates) because the curves are priced for easing. If you buy a 2 year forward contract in brazil and the exchange rate doesn’t move then you will make money.
This is quite a complex financial trade, read up on it first - i’ve put a couple of links below.