Strategies · Library · Currencies
§8.3Carry
Dollar carry trade
Average the forward discount across a set of foreign currencies. If positive, go long all of them against the dollar; if negative, short them. It tracks the health of the US economy.
- Asset class
- Currencies
- Held for
- Months
- Data
- Needs data ARCANE lacks
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Average forward discount over a basket.
- Entry and exit
- Flip long or short as the sign changes.
- Sizing
- Equal weights.
How it fails
- Regime shifts
- Dollar rallies in stress
- Costs
Data it needs
- forward rates
- spot rates
No forward data.
How ARCANE uses it
Background for macro Calls.
Needs forwards.
Filed under the carry card
Own what pays more than it costs to finance (the return if prices stand still) and sell what pays less, across currencies, bonds, commodities and stock indexes.
A paper plan from this card holds 21 to 252 days, stops at 2× the expected move and uses at most 75% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §8.3, p. 89 of the SSRN version. Described in our words. Carry is ARCANE’s filing, not the book’s.