Cash and Carry - Trading-Lab

rookie · #1 08-15-2007, 05:22 PM

does anyone know about Cash and Carry as it applies to currency trading? I remember reading somewhere it's some sort of "trading system" where you hold a basket of currencies paying higher interest rates than your home currency. Then, you kind of trade in and out of your pairs to pocket some additional trading profits, besides interest accumulating daily.

hedger · #2 08-20-2007, 04:06 PM

it's done by big institutions. It's called carry trades. As you said, you build a basket of currencies paying higher interest and you hedge that a bit by holding other currencies paying lower interest. However, you are not 100% hedged, otherwise it would be an arbitrage. a small investor can replicate that as well. you have to do a little bit of research.

charlesK · #3 08-21-2007, 02:37 PM

I think what institutions do is short spot and buy forward to earn the interest differential.

rookie · #4 08-22-2007, 04:45 PM

what do you mean by spot and forward exactly?

charlesK · #5 09-10-2007, 06:02 PM

currencies have a spot price and a forward price(forward contracts). Spot price is just the price of a currency in relation to another (USD/EUR) for IMMEDIATE DELIVERY. In layman's words, it's the price always referred to in the news when they say, "Dollar weakens against the Euro, Yen, blah blah blah".

a Forward Currency contract, on the other hand, gives you the possibility of locking a certain currency price for delivery on a FUTURE DATE. when the date comes, the two contract parties are obligated to buy or sell the specified amount of currency at the specified price.

rookie · #6 10-19-2007, 08:53 PM

thank you very much for your explanation

Thread Tools	Search this Thread
Show Printable Version Email this Page	Search this Thread: Advanced Search
Display Modes
Linear Mode Switch to Hybrid Mode Switch to Threaded Mode

#1 08-15-2007, 05:22 PM
rookie Member Join Date: Jul 2007 Posts: 86	Cash and Carry does anyone know about Cash and Carry as it applies to currency trading? I remember reading somewhere it's some sort of "trading system" where you hold a basket of currencies paying higher interest rates than your home currency. Then, you kind of trade in and out of your pairs to pocket some additional trading profits, besides interest accumulating daily.

#2 08-20-2007, 04:06 PM
hedger Member Join Date: Jun 2007 Posts: 38	it's done by big institutions. It's called carry trades. As you said, you build a basket of currencies paying higher interest and you hedge that a bit by holding other currencies paying lower interest. However, you are not 100% hedged, otherwise it would be an arbitrage. a small investor can replicate that as well. you have to do a little bit of research.

#3 08-21-2007, 02:37 PM
charlesK Junior Member Join Date: Jun 2007 Posts: 26	I think what institutions do is short spot and buy forward to earn the interest differential.

#4 08-22-2007, 04:45 PM
rookie Member Join Date: Jul 2007 Posts: 86	what do you mean by spot and forward exactly?

#5 09-10-2007, 06:02 PM
charlesK Junior Member Join Date: Jun 2007 Posts: 26	currencies have a spot price and a forward price(forward contracts). Spot price is just the price of a currency in relation to another (USD/EUR) for IMMEDIATE DELIVERY. In layman's words, it's the price always referred to in the news when they say, "Dollar weakens against the Euro, Yen, blah blah blah". a Forward Currency contract, on the other hand, gives you the possibility of locking a certain currency price for delivery on a FUTURE DATE. when the date comes, the two contract parties are obligated to buy or sell the specified amount of currency at the specified price.

#6 10-19-2007, 08:53 PM
rookie Member Join Date: Jul 2007 Posts: 86	thank you very much for your explanation