The USD/TRY/CAD Hedge Carry: One Month Later

At 11:59 PM last night (23:59 -8 GMT), the USD/TRY/CAD live hedge carry account I created closed out its first full month of existence. Click here to read my post explaining how this works and how it is structured.

The quick way to describe what has happened: success!

Over the course of the month I witnessed the value of the account swing between a positive unrealized gain of 14% and a negative unrealized loss of %18. Growing the net asset value of the account is not the goal here, however, so these numbers should be looked at as a gauge of how well the pairs are tracking each other only (zero unrealized gain/loss is the ideal). There were times that USD/TRY short and USD/CAD long did not follow each other very well, but they did track each other enough to accomplish two things:

1) The account never hit a margin call, obviously;

2) The amount of available margin in the account was always adequate to allow for the monthly withdrawal from the account, which at present I am maintaining at $5 per $100 deposited.

Oil definitely seemed to be the trigger for divergence, what I call the periods of time when the two currency pairs stop following each other. Once oil exited financial press headlines again, things seemed to settle down. There are no doubt far more triggers than just that, but it is something to keep an eye out for. At present with weekend spreads at their widest the account is sitting at an unrealized loss of -8% with available margin sitting at roughly four times the present monthly withdrawal amount.

The total interest income generated in October was $7.42. During the month I added more funds to the account and I was able to find entry points for all of it, but the income contributed by those additional amounts is relatively small owing to their late entry. The original $100 block was generating roughly .21 cents per day, or $6.51 for the month, for an annual percentage rate of roughly 77%. Since I am drawing $5 per $100 deposited, this covers the withdrawal and leaves behind $1.51 to pad the account and lower its total leverage. Thus, each day that goes by this arrangement becomes more safe.

So then, on into month two! Only time will tell if this method will continue to be successful. My two game accounts that are running this model, one started in April of this year and another launched in May, are both still humming along and doing just fine. Since the per-$100 setup of this puts $68.75 into play, the resulting margin call level of $31.25 means that at a withdrawal rate of $5 per month, it would take 14 months to get back an amount in excess of $68.75, the portion truly at risk. Therefore, if any $100 block makes it to 14 months, I guess that is where "success" begins. I think the chances of getting that far and beyond are pretty good, but the risk of failure is certainly still there. It's like I often tell people about investing in general though: you are guaranteed not to win if you don't ever play the game.