This blog will focus on low delta, highly correlated, positive carry FX trades. I search for currency pairs that show a large degree of price correlation and a net positive interest rate differential. For example, if the AUD/USD and USD/CAD pair have been correlated to a -0.95 degree. A trader can sell both pairs and earn a positive rate of $0.65 per day per bundle on ThinkorSwim. The goal of the trade is to have one pair go up in the same ratio of the other. The net price appreciation should be zero and the carry should provide a hansom return. Based on current rates, the AUD/USD and USD/CAD bundle can return up to 150% in carry alone, depending on the amount of leverage.
Risk management is an important part of my strategy. FX markets are traded on huge amounts of leverage and while I take advantage of this to amplify the interest rate differentials, I am careful to pair my trades so they have low price risk, low portfolio volatility, and a safe amount of capital, should the spreads between pairs widen.
Check back for updates.
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