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How to arbitrage foreign exchange

Over the past decade, trading volume has grown rapidly, reaching $6 trillion a day.

An important reason should not be ignored is the carry trade.

Carry trading uses a large number of trading models to create arbitrage space through algorithmic trading, which also makes it more difficult for ordinary investors to operate.

However, it would also be helpful if we understood some of the basic ideas behind the carry trade.

How do you use arbitrage in leverage?

The carry trade strategy is very effective in leveraged trading.

In general, at a 1:100 leverage ratio, which most ECNs offer, the carry trade strategy will earn 200% on a 2% spread in one year.

However, it should not be overlooked that carry trade strategies still leave much to be desired.

This strategy mainly applies to the stability of the market, there is no prerequisite for large changes.

The truth is that if the price of the high yield falls, the foreign-exchange loss on the swap will exceed the profit.

Moreover, even if overall economic sentiment is positive, there is no guarantee that conditions in the countries issuing the currency will be conducive to growth.

In addition, carry trade does not apply to flip traders and intraday traders.

It is best suited for wave traders.

Most notably, the “first, then” model is difficult for retailers given the rapid changes in transaction costs and spreads.

But don’t be discouraged, there’s another way you can profit — warehouse arbitrage.

In this case, you just need to find the right one.

The so-called “holding interest” refers to the overnight interest incurred when holding the trading currency for settlement.

Take the position arbitrage foreign exchange currency pair (US$) commonly used by ordinary traders as an example. On the dealer platform, the overnight holding rate for buying a single Aussie dollar is + US$6.40, which means the dealer pays you US$6.40.

The overnight interest rate on a single-handed Aussie dollar sale is -8.8, meaning you pay the dealer 8.8.

The standard contract for a single hand forex transaction is 100,000.

For example, in Aussie USD, the first hand is a $100,000 contract.

Yes, the currency in front is the Australian dollar and the Australian dollar is the base currency.

If you want to earn interest, you will need to find a dealer who meets the following criteria: 1. Try to keep the spread as low as possible: The so-called “spread” is the “difference between”, which is your trading cost.

There are two types of Australian dollars.

Audusd at 0.93933 — AUDUSD at 0.93918=0.00015.

This is a five-figure offer, that is to say, for dealers with five decimal places, we call it 15 points.

There are also four offers from dealers, so it can be said that the point difference is 1.5 points.

The 15-point spread is very low.

Normally, the Aussie spreads about 20 points against the US dollar.

It should also be noted that point extensions are usually divided into fixed-point extensions and floating-point extensions.

Fixed-point extensions are where the point extension value is fixed, while floating-point extensions are where the point extension value changes within a region.

It is recommended to choose a dealer account with fixed-point price difference.

2. Leverage as high as possible: The so-called leverage is the amplification of money.

Traders will offer anywhere from 100 to 1,000 times leverage.

1 hand dollar contract.

If you don’t use leverage, you need 100,000 Australian dollars (usually converted to US dollars).

If you use 100 times leverage, you only need A $1,000 as a margin;

If you use 300 times leverage, you only need A $333 as a margin.

Note: The amount of leverage has little to do with risk as long as it is not abused and a large percentage of the leverage can be used to build positions.

3. The mandatory closing rate should be as low as possible: The so-called mandatory closing rate refers to the margin rate below the minimum value.

If it falls below this value, the dealer will not be forced to close the contract due to insufficient margin.

Common forced closing rates are 100% and 20%, of course 80%, 30% and 0%, depending on the dealer.

4. Convenient mobilization of funds: This not only affects the profit rate, but also affects the security of funds.

5. Platform gold is less different from forex: This also affects margins.

The dollar continued to fall commodity currencies strengthened, the Bank of Japan resolution will be announced.

Please pay attention to the specific operation, the market is changing rapidly, investment needs to be cautious, the operation strategy is for reference only.