I don't suggest shorting NZD nor AUD, as the interest u need to pay is too high, and it is too expensive if seating in a boat for a long time.

u can short gold, short YEN... but never short NZD nor AUD.

Agree, interest payment is not the only factor.

But interest payment is an important factor for your decision, unless u have a clear and unique idea for the trend of the currency.

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原帖由 easylover 於 2008-7-31 10:36 發表
interest rate is not the only factor to affect its currency
if that easy, all become rich

I am shorting gold recently and the result is quite good.

Firstly, the interest to be paid is very low so I can still alive if sit in a boat. Secondly, the fluctuation is big enough for my long and put position.

The gold should be reaching USD880 tonite. I may switch my put to long position when gold reaches USD840. However, must be very alert to change to long position becoz interest is very high.

Think in this way. Short means u borrow (short) something and buy another thing (long). To borrow, u need to pay interest. To buy or to long, u can gain interest. There is always a pair of currencies.

Short gold means u borrow gold (short) and buy USD (long). Since gold has no interest, so borrowing it requires no interest (or min interest), and on the other side, your long position of USD will generate you interest but USD gives u very low interest.

So if u want to prepare to sit in a boat for long time, u should borrow something that can generate you daily interest insteads of paying interest.

The Forex rate in a major Bank:
USD buy 0.65% sell 2.65%
NZD buy 7.365% sell 8.365%
Gold buy 0% sell 1%

So if u long NZD and short USD, u can gain a interest of 7.365% - 2.65% = 4.715% (+ve interest, good to sit in a boat).

If u short NZD and long USD, u need to pay 8.355% - 0.65% = 7.705% (-ve interest, very high, the boat will sink if sitting long time).

If u short gold, u need to pay 1% - 0.65% = 0.35% (interest return is -ve)

If u long gold, you need to pay 2.65% - 0% = 2.65% (interest return is more -ve)

In short, u should very alert if u want to borrow (short) something that requires high interest, like selling NZD or AUD.

But of course, the trend of strengthness of the currency is more important than the interest rate. I will consider interest rate for sitting in a boat case.

Also, for the 1st case, u will gain 4.715% by buying NZD and shorting USD. But it is not the end of the story. Since you are using margin, like 10% of the cost to buy 100% of the NZD, so u are multiplying your money. And indeed, u are gaining 4.715% X 10 = 47.15% interest!!!

If you believe the economy is a round circle, and somehow unluckily u sit in a boat for buying NZD and shorting USD, u can just sit and relax and wait for the Earth to turn for a circle. And at that time, u won't loss for the NZD-USD pair, and also u will gain the 47.15% X time in yr of interest. And time is your friend.

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原帖由 peninsula 於 2008-8-5 20:45 發表

Short gold has no interest, right? Only long gold you have to pay interest.

[ 本帖最後由 b4321 於 2008-8-6 10:20 編輯 ]

Somehow if u are holding NZD and want to sell, you should say you SQUARE. If u don't have any NZD but still want to sell, so u borrow NZD and then sell, we say u SHORT. In the later case, since you borrow NZD, u need to pay interest.

So short is not just a simple translation of "sell", but a step of action of "borrow", pay the interest in the period, then "sell".

Although interest earned or to be paid is a very important consideration, but the trend of currency should be the most important factor. Interest consideration is for your worst case to sit boat.

It's not easy to estimate the trend, as currency is not only for ordinary traders, but also a tool by various central gov'ts. FOREX is the smartest money, and also FOREX market is much bigger than share market. When people are saying "smart money", my 1st impression is talking abt money in the FOREX market, but not share market. If you are selling or buying NZD, your opposite side trader may not be an ordinary trader like you, but maybe the central bank of NZ or even US Federal Reserve. If u can think abt your opponent, u should be very careful for each of your position.

The hardest currency to predict is YEN. Its currency can go down even its' economy is strong.

NZD is going down recently due to the cutting of its interest rate (becoz of its slowing down economy?). But on the other side, USD is not cutting its rate, but I think US economy is dropping much worse than NZ.

I should say raising or cutting interest rate will affect the short term fluctuation, but the economy strengthness will affect the currency's long term fluctuation. However, short term can mean "days" or even "years".

Drop or raise is a relative term but not an absolute term. If currency A drops 10%, and currency B drops 20%, and u are holding currency A, then actually you gain 10% against currency B. FOREX always involve a pair of currencies.

In the share market, it is an absolute term. If you are holding HSBC and it drops 10%, it means you loss 10%. Share market is "easier" to be understood.

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原帖由 asahi 於 2008-8-6 02:48 發表
b4321, very good. I love your explanation. Master of finance.
So whats your view in NZD ? If i hold NZD should i short ?

[ 本帖最後由 b4321 於 2008-8-6 10:15 編輯 ]

FOREX is not safe, but highly dangerous. So better to play safely and should not excess your limit. Choosing a safe currency pair and prepare to sit in boat.

[ 本帖最後由 b4321 於 2008-8-6 11:53 編輯 ]

You short AUD and long YEN? It's a lot of interest needs to be paid. But if it is the other way around, u can still earn interest and can sit in a boat and don't worry much.

Always remember the world is a circle. Unless the bank forces u to square after some period (ie 1.5 yrs or 2 yrs). I have my FOREX in HS Bank and it has no time limit for the position. But Citibank will force u to square.

I used to long YEN and short USD in the last 18 months and I paid high interest rate (becoz USD rate was high and YEN had no interest). I sat in the boat for 12 months and finally my boat reached the shore suddenly. Although I didn't loss point in the pairing, but I lost around HK$50K in the interest payment.

Now I have my position to long NZD against YEN recently. I lost some pts, but I am gaining good interest. And I am happy to sit in the boat for years or until the boat reaches the shore. I will not do in the opposite way no matter how confidence I have in my view. I may long more NZD against YEN if it reaches below 78.

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原帖由 peninsula 於 2008-8-6 12:10 發表

I picked the wrong pairing eg. GBP/JPY and AUD/JPY

[ 本帖最後由 b4321 於 2008-8-6 14:10 編輯 ]