Comments on: An explanation of the carry trade http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/ because the economy is run by chimps Thu, 28 Aug 2008 16:40:30 +0000 http://wordpress.org/?v=2.3.2 By: Hot Topics - Finance « SGSITS eLearning http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/#comment-154 Hot Topics - Finance « SGSITS eLearning Mon, 30 Jun 2008 14:20:05 +0000 http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/#comment-154 [...] Carry trade [...] […] Carry trade […]

]]> By: Alex http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/#comment-90 Alex Wed, 09 Apr 2008 08:09:30 +0000 http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/#comment-90 @Furu: money management matters more than leverage. Is it better to leverage 10:1 with £1,000 or leverage 100:1 with £100? Either way a fairly small move would wipe you out. Whatever you do, start small. Currency swings can be huge. As always, only invest what you can afford to lose. @Charles: you could set up a currency trading account and 'short' the Yen against other currencies that way. If you actually wanted Yen in your hand (or bank account) to invest elsewhere, though, I don't know how you'd do that. Easy enough for a commercial investor, probably rather more difficult for a retail investor. @Frank: good point, and in all honesty I'm not sure. It's certainly the way things have been (until the middle of last year when the carry trade started to go 'twang'). It might have something to do with the relative 'velocities' of the borrowed money (from your broker) versus the sold money (on the open market). When I have time I'll look into this some more, unless anyone else would like to chip in here? @Furu: money management matters more than leverage. Is it better to leverage 10:1 with £1,000 or leverage 100:1 with £100? Either way a fairly small move would wipe you out. Whatever you do, start small. Currency swings can be huge. As always, only invest what you can afford to lose.

@Charles: you could set up a currency trading account and ’short’ the Yen against other currencies that way. If you actually wanted Yen in your hand (or bank account) to invest elsewhere, though, I don’t know how you’d do that. Easy enough for a commercial investor, probably rather more difficult for a retail investor.

@Frank: good point, and in all honesty I’m not sure. It’s certainly the way things have been (until the middle of last year when the carry trade started to go ‘twang’). It might have something to do with the relative ‘velocities’ of the borrowed money (from your broker) versus the sold money (on the open market). When I have time I’ll look into this some more, unless anyone else would like to chip in here?

]]> By: Frank http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/#comment-87 Frank Fri, 04 Apr 2008 14:17:10 +0000 http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/#comment-87 Thanks for the article Alex, it was very well written. I am not clear on your response to Jeff's question about the effect of the carry trade on the value of the target currency. It seems that in the carry trade practice, the amount borrowed in the target currency is equal to the amount sold in the target currency in the purchase another currency (or other asset). In this case, wouldn't the value of the currency be fixed because there is an equal amount of buying and selling? Thanks for the article Alex, it was very well written. I am not clear on your response to Jeff’s question about the effect of the carry trade on the value of the target currency. It seems that in the carry trade practice, the amount borrowed in the target currency is equal to the amount sold in the target currency in the purchase another currency (or other asset). In this case, wouldn’t the value of the currency be fixed because there is an equal amount of buying and selling?

]]> By: Charles http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/#comment-86 Charles Fri, 04 Apr 2008 01:18:30 +0000 http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/#comment-86 How can an individual investor borrow in yen? How can an individual investor borrow in yen?

]]> By: Furu http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/#comment-83 Furu Tue, 01 Apr 2008 10:35:31 +0000 http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/#comment-83 How much you recommend to leverage to use carry trade. Some forex accounts offer 200:1 but based on my knowledge most professional investment banks wont even do 5:1 I used to be invested in a Forex Fund that was leverage 3:1 I like to play around 4:1 do you think it is satisfactory Nice Writeup How much you recommend to leverage to use carry trade.

Some forex accounts offer 200:1 but based on my knowledge most professional investment banks wont even do 5:1

I used to be invested in a Forex Fund that was leverage 3:1

I like to play around 4:1 do you think it is satisfactory

Nice Writeup

]]> By: Alex http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/#comment-46 Alex Tue, 11 Mar 2008 15:32:49 +0000 http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/#comment-46 Sorry, by 'recipients' above I meant 'currencies'. Sorry, by ‘recipients’ above I meant ‘currencies’.

]]> By: Alex http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/#comment-45 Alex Tue, 11 Mar 2008 15:31:09 +0000 http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/#comment-45 Thanks for your comment. With the YCT, effectively you are selling the Yen to buy higher-yielding currencies, which you then put in bank accounts or other investments. If everyone's selling, the price goes down. What we're seeing now is the Yen (and other carry trade recipients) appreciating because investors are having to buy Yen to repay their loans. Thanks for your comment. With the YCT, effectively you are selling the Yen to buy higher-yielding currencies, which you then put in bank accounts or other investments. If everyone’s selling, the price goes down.

What we’re seeing now is the Yen (and other carry trade recipients) appreciating because investors are having to buy Yen to repay their loans.

]]> By: Jeff Benson http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/#comment-43 Jeff Benson Mon, 10 Mar 2008 03:21:44 +0000 http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/#comment-43 Please explain from an economic standpoint why the target currency is devalued in the YCT. My confusion comes from the assumption that increased borrowing (of the target currency) is essentially increased demand and reduction of supply by moving the currency out of the country. Please explain from an economic standpoint why the target currency is devalued in the YCT. My confusion comes from the assumption that increased borrowing (of the target currency) is essentially increased demand and reduction of supply by moving the currency out of the country.

]]> By: dr. filthy http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/#comment-4 dr. filthy Sat, 19 Jan 2008 04:36:06 +0000 http://www.economonkey.com/2007/09/01/an-explanation-of-the-carry-trade/#comment-4 Thanks economonkey.... you rock. Very good articles, clearly written in a way that even a filthy "thick as bricks" kinda dood like me could understand. I hope you keep writing, you're very talented! Cheers, Thanks economonkey…. you rock. Very good articles, clearly written in a way that even a filthy “thick as bricks” kinda dood like me could understand.

I hope you keep writing, you’re very talented!

Cheers,

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