Thread: How to cover a carry trade operation in GBP/JPY?

I would like to carry trade with the GBP/JPY. But I wonder how I could cover that position and at the same time reduce the risk of a big fall. The idea is to keep the balance between profit/loss stable while charging interest every day. Thank you. �When the student is ready, the teacher appears�.

Collecting interest is fine... if the pairs have perfect correlation. Normally if you go wrong, you end up negative in both positions, and even if you are earning interest, those revenues are so small that they don�t compensate for losses. The most complicated thing is the time of entry into the hedge. But if you use mechanical rules, you can define it using the relationship between instrument 1 divided by instrument 2. Review my thread about �hedging the hedge� can help you. I�m trying to minimize risk and reduce drawdown.

Statistical arbitration, market correlations and GBP/JPY against the S&P 500, hedging included! Keep an eye on the thread.

I don't cover G/J directly, but I found a formula that has given me safe profits. It works two months ago... I started on November 9th, I bought 100 units at 238. As we know, the price has been falling. Every time I went down 100 pips, I added another 100 units. The lowest point was 220, so I added 28 times. Although I have not realized profit, I have been charging interest every day. The current price is 228, I closed about 8 or 7 positions of 100 units and I got profit. The rest is still open and I still generate interest. Yes, I do, but with very small lots because my capital is limited... but I did my calculations and even though G/J falls from 200, I could hold.

Hello, I was glad to see you here too... in Oanda there is a thread in the section of rookie traders that deals with carry trade, and last year I managed to double my account. The subject was started by a certain Don Quixote, his posts are very good. Maybe you�re more interested in AUD/JPY because with the same margin as GBP/JPY, you get more swap. What I do is put limited orders above the market price when there�s a setback, just above the maximum of the previous day or close to a round number. So you can buy when the price starts to rise. You�re going to have some whipsaws, but it�s better than buying and the price keeps falling. Once you�re in profit, put the stop Loss for the whole position just below a support that�s below your average price. If the price keeps going up, you�re going up the SL. If you�re going back again, you�ll gain something and have the chance to buy cheap again. If you want more risk and benefit, you can always add units as you go up, but always moving the SL for all.

I'm taking my life one pip at a time, officially I have my own opinion.

I just hope I'm not doing things wrong...

The idea is good, but it seems that few here handle the issue of options. I also thought exactly about that concept. Your swaps can cover the cost of premiums, so the potential is all up. The market can stay irrational much longer than your account can survive.

Interesting what they say about statistical arbitration. I had no idea that that strategy could be used to cover a carry trade operation. I guess I should go deeper into correlations and cross ratios to apply it effectively. I�m going to look for that thread they mentioned about �hedging the hedge.� Everything that reduces the drawdown without killing the swap interests me. Thank you for sharing.

I find it curious that many mention AUD/JPY as an alternative. I understand that swap is better, but it�s also a pair with less volatility than GBP/JPY. I don�t know if sacrificing movement for extra swap is the best move. I�m going to study it anyway. Maybe it works as a complement, not as a replacement. Diversifying the carry trade between two pairs with positive swap could better balance the risk.