Finding the right ETFs for Currency & Rates positions

laffer

pjbltd wrote: »

Thanks for all the replies.
Looking to invest up to £4000.

ETFs are very liquid instruments and heavily traded, I'd say a bigger risk would be counterparty risk (JPMorgan and Bank of New York).

For those interested my reasons for Long AUD are two fold:

1. Interest rate differentials (primary driver in exchange rates). Australian Central Bank is not looking to cut rates as their economy is in their words has "suffered the worst already", while the US is going to be keeping rates artifically low for a v. long time.
2. Commodity Exporter. Believe demand for commodities will remain (especially fuelled by investors). The currencies of commodity exports will appreciate on back of this.

But are you not going to have to convert £ to USD and then bring it back to £? So in effect you would be looking at not only risking your bet on the USD/AUD trade but the USD/GBP trade?

pjbltd

Believe the return on AUD will outweigh any GBPUSD movements

pjbltd

Posting today's rates

1 AUD = 0.7036 USD
1 GBP = 1.4567 USD
1 AUD = 0.4830 GBP
FXA = 70.18

Investment horizon = 3months
See what happens

laffer

Do you suppose the AUD is going to keep rising against the £?

tradetime

ETFs are very liquid instruments and heavily traded, I'd say a bigger risk would be counterparty risk (JPMorgan and Bank of New York).

I'm sure "very liquid" and "heavily traded" are relative term to the person who uses them, but just for your comparison, I approach any ETF that trades less than 500,000 shares per day, with a little caution, particularly for any form of short term trading and definitely on the short side, I do not consider that sort of figure to be "heavily traded" or "very liquid", 500,000+ is acceptable to me for short term, for intraday I prefer volume in the millions, SPY is "very liquid" and "heavily traded" as is QQQQ Most of the ETF's I have mentioned trade at less than 200,000 avge.

Of course I realise you said nothing about intraday, just drawing your attention to the fact that if you are following some tutorial or whatever that has suggested "very liquid and heavily traded, most of those don't appear to fit the bill.

sabretoothtigger

Why not invest in some Australian stocks that pay a decent dividend or track their market even

bhp bhilton is quoted there I think, a play on commodity's and currency

tradetime

Looking to invest up to £4000
Investment horizon = 3months.

I would strongly suggest you consider doing this through a FX broker it would be an awful lot cheaper, I don't have time right now, but if you want I'll have a look at some charts over the weekend and run some numbers for ETF's.
Have you backtested it at all using that amount of money?

£4000 wouldn't even get you 100 share of FXA

purch

1. Interest rate differentials (primary driver in exchange rates).

Since when ?

Interest Rate Differentials have always been, and will always be only a very short term influence on exchange rates.

The primary drivers of exchange rate movements are far more complex, and have far more to do with underlying economic fundamentals than merely interest rates.