Interest Rate ?s ... Senior Members Please Help.

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I've got two more steps to complete before I'm ready to go live. Interest Rate Trading and Error Handling Coding. I've been researching Interest Rate Trading but the process generated more questions than Answers. I'm gonna put this in list format and hope it makes the q/a more direct.

 

*Are Interest Rates the same as Swap points?

 

*Is This the interest rate's I should be looking at? If so, Longing the Eur/Usd should return Positive Interest correct?

 

*My platform shows -negative swaps for Long and Short EUR/USD how can this be? 

 

*Does (Interest Rates/Swaps) get applied every Wednesday? 

 

*The Carry Trading requires two different brokers, 1 who pays interests and the other who doesn't. Why wouldn't my broker just pay me the difference.

 

*Does this strategy Only work on Correlated pairs?

 

*Is it realistic to budget say about $5000 for this type of trading? Will it return 100% or more within the year?{assuming the interest rates stay constant and I'm using say 500:1 leverage}. If not 100% how about 50% or $2500.

 

*I don't wanna jump ahead of myself but is it advisable to trade other markets {example Futures Fx} in order to square risk exposures  or would OTC-Fx hedging be sufficient.

 

*I suck at Math, giving the worth of tools available online, am I still hopeless in trying to exercise this type of strategy? {I do intend to start reading more math books :)}

 

*Do I stand correct in understanding that Carry Trading is less-risky compared to taking flat out positions in Forex.

 

*Is it possible  to back-test such a strategy? If so, Any good references for programming such? Any other good material you can recommend would be appreciated. 

 

Some answers,

Interest rates is similar to swap points. Many banks won't quote absolute rates but rather a points change to your entry position. Thus a +0.0001 swap point does not always means it is positive swap. If you were long, a +0.0001 would be increasing your entry price. You can check this by checking some pairs that have +'ve swap points on both sides of the trade. I promise you that this is not positive swap on both sides of the trade.

It is quite common for the brokers to take a cut of the swap, so negative swap on both sides of your EURUSD trade is not unusual.

Swap is credited daily to your account and triple on a Wednesday to compensate for the absence of swap on a Sat & Sun. Wed is 2 days after the weekend which is settlement period for trades on the spot market.

Swaps on Demo differ from live swaps, so only make you calculations based on live account info. Use marketinfo - mode_swaplong & swapshort to get the swap figures.

 
Thank you kennyhubbard for your addition.
 
ubzen:

*Is This the interest rate's I should be looking at? If so, Longing the Eur/Usd should return Positive Interest correct?


Yes and no. Those are central bank target rates for inter-bank lending...those aren't necessarily the rates that the banks actually get when they borrow from the respective central bank nor are they the rates that get passed along for lending from the bank to non-bank entities like businesses and personal loans.

The target rates are your baseline, and a 25 basis point shift in the target rate usually means there will be around a 25 basis point shift in the actual rate (which itself varies throughout the day like a stock price or currency exchange rate).




*My platform shows -negative swaps for Long and Short EUR/USD how can this be?




The "swap rate" in metatrader also includes the "rollover fee" which is a flat rate assessed on the action of rolling over the position at the end of the day regardless of the interest rate differentials involved.

If the net interest differential does not pay for the rollover fee then both the long and short positions will result in a net debit on the account.


*Does (Interest Rates/Swaps) get applied every Wednesday?





Applied M-F but Wed is "triple swap" day to account for Sat/Sun (when interest accrues but markets are not open)


*The Carry Trading requires two different brokers, 1 who pays interests and the other who doesn't. Why wouldn't my broker just pay me the difference.

Not necessary, you can "carry trade" by simply opening a position in a currency pair with one broker for which the currency pair nets a large swap credit. Two brokers are not involved, just one.


*Do I stand correct in understanding that Carry Trading is less-risky compared to taking flat out positions in Forex.
Yeah that is a misunderstanding. Since the process of opening a carry-trade position is no different then that of opening a speculative trade for any other reason the same risks of losing equity based on position size, leverage, and volatility apply.


*Is it possible to back-test such a strategy? If so, Any good references for programming such? Any other good material you can recommend would be appreciated.

Backtesting carry-trade strategies is virtually worthless with MT4 because they do not log the historical swap rates nor do they have any way of accounting for the historical swap rates even if you had the data. MT4 strategy tester simply applies the current value as stored in the Market_Info data for swap rate for the currency pair you are testing.

In fact, for backtests covering timeframes extending back more than about 2 yrs the swap rates are completely inverted from the reality of the markets at that time (2010 vs. 2006).
 

Thank you Phillip. Just the man I wanted to hear from :)

Anybody else have something to add? 

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