FOREX beginners

[DoctorG]

Can someone answer my question: if you do atrade on the FOREX USD /NZD market for example: 77cents and you sell, thinking that the the exchange rate will eventaully be 70 cents , is there a time limit on the position?
The rate may go up to 80c and then you would have lost but if you wait and then it comes back down to 70c, which over time it will no doubt, you will be all right. Or is the fact you are leveraging $1000 to $100000, meaning that you cannot just wait an infinite amount of time (months or yearsZ) for the exchange rate to come back to where you are back in a profitable position
(yes I know this is naive, but ine ghas to start somewhere, and I am using a demo account rather than real money!)

[peat]

Shorting the kiwi is a negative carry trade so you would be paying interest while holding the trade.
also you would need to be able to have enough margin in your account to cover the -300 pip trade which would depend on the size of the trade and your account balance
other than that no reason why you cant have long term trades with big stops.
The problem is it might keep going up. Its good practice to have a cutoff point for losses.
It depends how much you're prepared to risk and potentially lose.

[DoctorG]

So while you are leveraging $1000 of your own money to trade $100,000 , making $10 a pip, if it goes your way, or losing $10 a pip if it goes agianst you, and the profit or loss is locked in when the trade position is closed, while all that is happening, one is paying interest on the $100,000 , is that right?

What is the interest rate?

I guess if you do a trade within a few minutes, then the interest incurred is minimal?
But if you wait months for the trade to become profitable for you surely you are going to have a lot of interest to pay on the $100,000?

Is this paid to the currency trading platform, eg, OANDA, or is it taken into account in the spread buy/sell difference (which I thought was the companies like OANDA made their money "commission" that eg OANDA would be making)?

[peat]

Oanda calculate interest on second by second basis for your account balance and for each trades differentials

Heres how its done http://fxtrade.oanda.com/fxtrade/int...culation.shtml
and heres the rates https://fx2.oanda.com/user/interestrate.html

It is cr/dr to the account at 10AM each day and when the trade is closed.
In a NZD/USD short yes you would be dr the difference between the kiwi ask rate 8.65 and the USA bid rate 3.75


Some brokers calculate seem to calculate it once per day at a particular time of the day and if your trade isnt open at that time no interest is charged. This is an exploitable situation on intraday trades. see this post by arco in the 'metatrader platform' thread.
http://www.sharetrader.co.nz/showpos...9&postcount=10

Its never part of the spread. And yes for long term trades it would of course add up to reduce profits on a kiwi short or add to them on a kiwi long. Its what this whole 'carry trade' scenario thats been pushing the kwii higher is based on. If you can not lose on the trade itself then going long a currency with high interest rate will actually produce revenue. This is quite substantial if you consider the NZD/JPY cross eg interest rates on the Yen are currently 0.25 BID and 0.8 ASK. The Swiss Franc CHF also has low interest rates. These two are considered funding currencies as they are cheap to borrow or to go short.

[DoctorG]

Thats incredibly helpful thanks.
I have also found a really good website www.babypips.com which does a whole course on forex from "kindergarten to college", for anyone thats interested.

[DoctorG]

Has anyone tried, or can anyone tell me why this won't work:

Borrowing money from Japan at very low interest rates and investing it here in NZ at very high interest rates and making a constant profit .

(Although reading the interest calculation page on OANDA, I guess this is exactly what one is doing when you buy long on NZD/JPY and leave it open, hoping that the JPY does not get heaps weaker against the NZD.)

Couldn't you borrow "real money" from a Japanese bank and invest it in a "real" NZ bank, and then "hedge" against a currency change on the FOREX market, selling NZD/JPY?

There must be a reason why this doesn't work. Probably you have to be a Japanese resident or something.

Can anyone enlighten me ?

[Halebop]

I tend to avoid debt so can't enlighten you on the complexities of borrowing JPY from New Zealand. I'm sure there would be costs to consider beyond a simple interest rate. However, aside from that what you have described is essentially "Carry Trade", which is similar to arbitrage and often a variant of the borrow short / lend long strategy. It is certainly not riskless and many long term investment plans have been left in shambles at the feet of currency speculation. Suggest you get out the old Google engine and discover to your heart's content.

[DoctorG]

At the moment I am busily trading on my Oanda fx game account, its easy to lose fictional money.

[dumbass]

welcome dr g

sometimes the simple ideas work really well

this has been a big theme in the currency markets for quite a while
the carry trade is funded in a low yielding currency yen swiss franc etc and funds used to buy the high yields eg nzd and aud etc.
if you had looked at this a couple of years ago you would have made a bucket load

the problem now is risk
problems in other areas of the market lead to seriously rapid liquidation of these positions
if you get caught on the wrong side a high yield is small compensation

so we could be getting close to a big carry trade unwind which should be quite spectacular,
so i would say this would be a risky move at the moment to consider a carry trade

[DoctorG]

Its very interesting, I just had a margin call on my Forex account and had all my positions closed, losing $11,000USD, on my 'game' account.
-quite amazing
-and for a while I was doing so well!
It will be a while longer before I use real money....