All About Financial Matters

Profit From The Carry Trade In Currency Trading

If you propose to trade currency for the longer term, such as I do, rather than as a scalper who trades the market hundreds of times as day, then a key element to your success will be in understanding the carry trade. This provides trading opportunities due to the difference in interest rates between the various currencies.

Each country and therefore currency has its own interest rate, which is then converted into borrowing and lending rates by all the banks. When a bank lends you money the rates are always higher than when it borrows (like a spread). It pays you a lower rate on your funds deposited, than it charges you to borrow! Now, obviously rates between countries vary enormously. The interest rate in Japan is currently near 0%, and the New Zealand central bank rate is 7.25%, the Swiss is currently 2.0%, the Eurozone 3.5%, UK 5.25%, and the US at 5.25% Now the variation in currency from country to country allows us to use interest rates to our advantage in longer term trading.

If we take an example as follows: suppose we decide to buy the USD/JPY currency pair. With a BUY order we are long in US dollars (bought) and are short the Japanese Yen. Over a twenty four hour period on 10,000 dollars we might look to make $1.10 every 24 hour period. Now if we assume that you are trading at a leverage of 100:1, you are effectively earning 1.10 USD on 100 dollars for one day on a buy order. For a month of trading this would equate to 33 USD on 100 dollars - not a bad rate of return!!! With a carry trade we always buy the higher interest rate currency and sell the lower interest rate for a positive carry. Using the carry trade is a great way to earn excellent rates of return on your trades, along with a profit on the actual trade itself – and remember if the trade goes in the opposite direction, at least you are earning money on the trade. The longest I have held a carry trade is nearly 15 months.

In using carry trades, always use the major crosses, never any of the exotics, and always remember that if you are looking at a carry trade possibility, so is the rest of the world. After all we all look at the same charts and prices!! Also remember that what may have been a great carry trade last year may not be so great this year – interest rates can and do change so check the carry trade yield before you enter the trade!!

Anna Coulling is a full time currency trader and investor, who specifically helps women to understand the financial markets. All the information on her web site is free. .For further information and details please click on the following link :

The West Coast ETF Offense

Former San Francisco Forty-Niners’ coach Bill Walsh is known for his low-risk high return West Coast offensive strategy, which yielded high returns indeed. From 1984 to 1989, San Francisco had a 75.7% winning percentage and won three Super Bowls. Walsh noticed that short passes to backs and receivers led to a much higher completion rate and, just as important, more than half the yards gained from each completion were from running after the catch.

In the world of investments, think of dividends as these short pass completions and the capital appreciation from re-invested dividends like running down the field after the catch.

The role of dividends relative to total returns is under appreciated by most investors. Most are obsessed with the low probability deep passes. In football, you’d call them the long bombs; in investing, they’re the ten-baggers. In fact, since 1926, dividends and their growth from reinvestment accounted for about half of total stock market returns.

Even in regions like Asia where countries like Japan have companies with historically low dividend yields, dividends are responsible for a substantial portion of total investment returns.
A vast majority of the 300 or so ETF baskets on the market follow the conventional market cap strategy of weighting companies in the basket by their market value.

This means that the big companies like Exxon Mobil, Coca-Cola and General Motors get more of your investment in an ETF than companies that are smaller. WisdomTree ETFs are the exception to the norm because they weight companies in their ETF baskets by a company’s record of paying cash dividends. Investors thus capture this dividend stream and also gain a sell discipline since company weightings are rebalanced based on annualized quarterly dividend yields.

The goal for football coaches is to get the maximum output from each player on the team. The goal for investors is to get the highest return for each dollar invested with minimum risk. Both the West Coast offense and the Wisdom Tree dividend-based strategy may deliver the best risk-adjusted returns.
As the current bull market enters into what many believe to be the fourth quarter of the game, focusing on a dividend strategy may be especially important.

In the early stages of a bull market, dividend-based ETFs might lag market-cap weighted ETFs as the big growth companies roar ahead, but late in the game the roles will likely reverse, with high dividend-payers outperforming the market.

In addition, a reduction in cash dividends, like a quarterback’s performance stats, is often times a signal of a company’s future sub-par returns. When Ford recently slashed its dividend, it was cut from some WisdomTree ETFs.

In a short time, WisdomTree has unleashed an interesting blend of ETFs from the Total Dividend to the International SmallCap to the Japan High-Yielding Equity ETF. It is also taking dead aim at the ETF market leader iShares team, and it is strengthening its bench by filing for more than 30 new ETFs including a few for emerging markets and some country-specific ETFs like the first ETF for India.
Competition in the ETF world is great for investors and the chartwelladvisor.com/.

We are following the game closely and will soon add a Dividend Focus ETF portfolio to our existing six model ETF portfolios.

Just like you don’t need huge offensive lineman to utilize the west coast offense, you don’t need big bucks to benefit from investor friendly dividend weighted ETFs.

Carl T. Delfeld President & Publisher Chartwell Partners chartwelladvisor.com chartwelladvisor.com

Carl has over twenty years of experience in the global investment business with a strong background in Asia.

• Author of global investor primer “The New Global Investor”

• President of the global investment advisory firm Chartwell Partners

• Publisher of the Chartwell Advisor ETF Report and Asia-Pacific Growth

• Columnist on global investing with Forbes Asia: “Global Gambits”

• Former U.S. Representative to the Executive Board of Asian Development Bank

• Chairman of the global economic strategy think tank ChartwellAmerica

• Asian specialist with the U.S. Joint Economic Committee and the U.S. Treasury

• Former member of the U.S. Asia Pacific Economic Cooperation Committee

• Former investment executive with Robert Baird & Company and UBS

• Graduate of the Fletcher School of Law & Diplomacy with economics scholarship from U.S.-Japan Friendship Commission