USD/TRY/CAD Hedged Carry: To Cash Out, Or Not To Cash Out

Conditions in the Forex markets proved very favorable for both of the USD/TRY/CAD hedged carry trade accounts I own that I have been writing about lately. Yesterday morning I logged in to make my daily position purchases and discovered that both of the accounts had unrealized gains that were in excess of the expected monthly income of each.

I've wondered before if in such a situation I should cash out the positions and begin rebuilding the trade from square one. When the aggregate value of the positions is a sum that is greater than the interest income I expect to draw from the account that month, it seems like a good idea - I could draw that amount and roll the extra gains into original capital, building an even bigger account. This seems like it could be a win-win scenario.

After some hesitation and further thought, I did not do this, however. One concern I have about taking this action is the subsequent rebuilding - I would be starting from zero and reestablishing position averaging all over again. I would also be starting off with a larger sum of cash than I had when I first created the account; to get it back up to speed in terms of monthly interest income, at least the amount in-play at the time of liquidation would have to be reestablished before the end of the current calendar month. This could have the effect of establishing relatively large positions at one "end" of the trade, lessening or even negating the influence of subsequent, probably smaller positions in terms of averaging the total position later on as prices move around.

Then there's a matter of involvement. Taking this course of action would have added complication to what I'm doing with this trade, some extra work. Monetarily the worth of that can be demonstrated by reference to the capital gain. Perceptually speaking, as a matter of personal satisfaction with this project, the worth of the action would have been, to me, negative (this is something that is necessarily individual in nature of course, and in my case it's not the kind of result I'm going for, but maybe someone else would).

What I will do going forward is treat these events as a sort of temporary "insurance," periods of time where the survival chances of the developing accounts are not in question, moments when I can continue to build on the positions under the shelter of a positive net asset value. Once the accounts reach "maturity," (I simply define this as the point in time when the accounts are producing as much monthly income as I am after and I have stopped building on them further) then perhaps I will use the periods when unrealized gains exist to extract some of the extra cash I leave in these accounts as a leverage-lowering enhancement of the NAV. At such times reinvestment of those funds elsewhere (or even back into the hedge carries if I decide to grow them some more) would be reasonable to do.