Matt Fong’s Blog

I don’t have much experience trading the forex (or FOReign EXchange) market but my curiosity has been reignited as I’ve seen the dollar gain so much strength in recent weeks. I’ve had an Oanda FXTrading account for a while but only recently started to place trades. So far my dumb-founded bets have been successful, but we’ll see how long this lasts.

One part that really intrigues me about forex trading is what’s apparently referred to as a carry trade. Let’s say I deposit $1000 USD into my oanda account. With this, I can leverage 1:50 and control up to $50,000 USD worth of different currencies. I don’t margin anywhere close to this ratio because it’s far too risky for me, but it is possible.

So with a $1000 account leveraged lets say 1:10 I can buy $10,000 USD worth of currencies and profit from the change. The Carry Trade comes in when you make a profit not only off the appreciation of the currency but also off the interest. If I buy 10,000 units (a $7,600 USD position) of the Austrian dollar earning 5.1% interest and sell the Japanese Yen where I have to pay .135 interest…each day I make $1.05 USD on interest alone.

The question becomes do interest rate differentials correlate to the appreciation of a currency? Theoretically I think the answer is yes, however in practicality, I think it’s far from true. Investopedia has a better explanation of a carry trade here.

I haven’t blogged much about business or investments so this entry is about just that.

It’s only relevant to Americans who live in Thailand or are visiting, but the baht/dollar has risen almost 5% in the past few weeks on better US economic data. I’m thrilled because it decreases the cost of living here by 5% which is pretty significant. It’s more of a dollar strength than a bath weakness as Euro/US and Yen/US have also risen. The baht/dollar in recent years has stayed around 38-42 baht/$. So, equate the rise to receiving a 5% increase in your salary, for doing nothing. It’s a pretty big difference and its currency ups and downs like these that make inter-currency commerce difficult. I once did a paper on the Euro and what an important and necessary change it was for the European Monetary Union…maybe I’ll post it sometime.

Anyway, here are some links to currency related sites that I use:

Oanda — For Daily and Historical Currency Price Quotes and Trading
Dismally.com — A blog written by a currency trader
Tim Laffel’s Cheapest Destinations also has good information for the fx conscious budget traveler.