What is the approximate interest rate for a long-term hedge (in Forex) using EUR/USD and USD/CHF. Of course this is dependent on your broker, but could someone explain how to calculate it please? Thanks.

Let me give you an example of a hedged carry trade.

Let's say that I opened an account on Friday with $10,000. I buy some lots of the EUR/USD and I buy some lots of the USD/CHF.

Each day I will pay an interest of -$15.25 on my EUR/USD and each day I will earn an interest of +$23.08 on my USD/CHF. So I receive a net interest payment of +$7.83 every day, seven days a week (I actually will receive triple interest on Wednesday to cover the weekend). This works out to $2860.77 per year or 28.61% annual interest. This is certainly better than a CD or money market account.

The crazy part is that I will receive this interest every day regardless of the price of the currency pairs. The interest is based on the number of lots not the underlying price.

Now although I opened the account with $10,000 I only have $1350 invested into this trade. Since my leverage is 400-1 I am actually getting paid interest on $540,000.

Since I am hedged as the price of the EUR/USD goes up the USD/CHF tends to go down. This reduces my risk and greatly reduces the impact of any wild swings.

I have an analysis of how this type of hedged carry trade would have performed over the past 500 days with various combinations of EUR/USD, GBP/USD, USD/CHF and USD/JPY. (Personally I only trade the EUR/USD and USD/CHF) I would be happy to send you the analysis if you are interested.

You can find the daily interest rates on dailyfx.com You are correct though that different brokers charge different rates. Most of my clients get institutional rates from InterbankFX.

Paul
pupp52@yahoo.com

This coming fall, I will be going to college in America. I'm not a U.S. citizen/resident, and so I'd have to go with an F-1 student visa, meaning I can hardly work there. But I was wondering if I was allowed to trade in Forex or invest in stocks while I'm there.. Is it legal? Because I mean, Forex is technically working internationally.. Please help! I'd appreciate sources.

The IRS requires banks, stockbrokers, casinos, etc. to report who they paid money to, above a certain amount ($10 to $1,200??) (e.g. interest, dividends, gambling winnings, etc.) via a Social Security or ITIN number. Without a verified number they must withhold some amount (20% to 35% ??) of any funds due you and send them to the IRS to cover any possible taxes due.

In your case, you'd get a ITIN (from www.irs.gov) to file with these companies and use it to file your US federal income tax form.

Being a foreign national student may exempt you from actually having to pay US federal income tax or it may be a credit taken on your native country's tax system. But you'll still need a verified number before you can apply for an exemption or a foreign tax credit.

I feel there is a game in Forex trading but i'm not able to figure it out. I feel it's not transparent as all broker companies pretend, can any one advice me, is my feeling right or wrong?

–
FX Mania

http://www.geocities.jp/fxtrading777/

the Forex doesn't have a central organism where currencies are dealt. You have to think of it as the global exchange of currencies. If you go to a bank and buy US dollars with your local currency then you have participated in the forex, in other words you have participated in that global exchange. But the idea is much broader. Forex includes the exchange of goods and services, investment transactions, speculation and everything else involved with money, even when you purchase something in a mall for your own use. All this is hardly transparent which makes it difficult for the layman and not so layman. Thats the nature of the Forex but it doesn't mean you can't make consistent profits from this enormous market.

A complex system such as the worldwide exchange of currencies can be narrowed down to relatively simple concepts for you to use. However, exactly because of this reason and it's low transparency, many scam artists arose to sell supposedly "profitable" trading strategies.
Be careful.

btw, there's no game. Forex is just forex, it can't be manipulated like a stock for example. The currency market is too large to be manipulated with the idea of scamming people.