Home User Guide – Carry Trade Calculator

User Guide – Carry Trade Calculator

The following release notes are for the Metatrader MT4 Carry Trading Indicator.

Quick Start

Load the indicator by dragging and dropping the tool icon from the navigator onto the required chart. Enter the time for your projected carry trade, the amount of margin used to hold the position, and the size of the position in lots. The margin should be given in your account currency. The margin is used to calculate an effective return (yield) on investment.

Figure 1: Carry trading pairs, interest and returns © forexop

The panel will display in blue where the carry trade results in a positive return, and yellow otherwise.

Input Settings

Input setting	Comment
Holding period	The number of days over which to calculate carry returns
Margin used to hold position	The deposit on which carry position held (account currency)
Number of standard lots to trade	Trade volume for the carry trade
Show interest in	Deposit currency (0), Base currency (1), Quote currency (2)
Show Panel	Toggle between showing panel or the graph

Outputs

Mode/Signal	Name	Description
0	Long yield	The percentage yield on a long (buy) side position
1	Short yield	The percentage yield on a short (sell) side position

MarketWatch window

The indicator can only do calculations for the symbols in the MarketWatch window. It will sometimes need to calculate cross currency rates. For example if your account currency is in USD and you are trading AUDJPY then the symbol AUDUSD will also need to be in the MarketWatch window to perform the correct calculations.

Strategy tester

MetaTrader doesn’t store detailed historical contract data for symbols (e.g. daily swap rates). Therefore running the tool in the strategy tester can give undefined results.

Brokers

Some brokers (e.g. Oanda) calculate interest using non-conventional methods. In other cases brokers may not issues the full contract specifications for symbols. In these situations the outputs will be undefined.

Not all brokers provide full swap details in their feeds. FXCM is one example. Outputs will therefore not be available for these brokers.

To check the contract specification, open the MarketWatch window (CTRL+M) and right click with on any symbol. In the menu that appears, select “Specification”. The swap details will be shown in the contract details panel (see Figure 2).

Figure 2: Example swap specification for AUDCAD © forexop

Yields and calculations

The yields (rates of return) displayed in the panel relate to your currency, your margin amount and the currency chosen to display yields.

For example:

Symbol NZDCHF
Account currency USD
Deposit amount 10000 USD
Days invested = 180
Trade: Buy (long)

Output

ROI=1.124%
Annual return=2.247%
Interest=$112.37

These numbers are calculated as follows:

Annual Return = 360 x Your Broker’s Interest Rate for NZDCHF / USDCHF rate = 2.247%
ROI = (Days Invested/360) x Annual Return
Interest = ROI x Amount Invested

Empty Values

The indicator may show empty values if it loads before the MarketWatch window is fully populated. This can happen when MetaTrader first opens and loads the indicators used in the previous session. To solve this, reload the indicator onto the chart.

Finding Carry Trade Opportunities

On the right of the main section the indicator lists interest rates on all symbols in the MarketWatch window. These are ordered from the highest yielding pairs to the lowest yield.

Figure 3: Carry trading pairs best to worst interest returns

Where a long (buy) holding results in positive interest carry the symbol is listed blue and where the sell (short) sides gives a positive carry the symbol is shown in green. Those with low yields (<1%) are shown in gray.

You can check the latest interest rates and histories accross all brokers on this page. The example below shows the interest rate chart for NZDCHF.

Figure 4: Interest rate history (swaps) for NZDCHF

Interest Rate Spread

The interest rate spread that the broker is charging is displayed to the right of the panel. This is the average rate on all pairs. This is useful for checking how competitive your broker’s fees are compared to others. When comparing, it is best to use the average across the same currency pairs.

The interest rate spread is a fee that brokers charge whenever you hold a trading position for a period of time. By convention, most brokers rollover any open positions each night at a set time. At rollover, the interest calculations are done and the net interest due (or swap) is added to the account (see here for more details).

Rates Markup/Markdown

The broker’s interest rate spread is the mark up used when you lend or borrow from them. When you borrow, you borrow at a higher rate than the market. When you lend, you lend at a lower rate than the market. The average difference between these two is the spread.

This fee isn’t paid directly but rather it’s paid from the interest rate cash flows during rollover. For example:

Consider the following:

Hold 1 lot x AUDUSD for 1 year:

Contract value	AUD 100,000 (USD 72,102 )
Interest received (long)	AUD 2,623	2.62%
Interest paid (short)	-AUD 3,811	-3.81%
Difference	-AUD 1,188	-1.19%

In this example, the spread is 0.6% (half of 1.19%). In other words, to buy (go long) AUDUSD, you will receive interest at 2.62% on the contract value, that is AUD 100,000. To go short AUDUSD you will have to pay interest at 3.81%.