We all know that rollover can be a trading cost but what about using it to profit?
For instance there are currencies against the JPY will attract a positive rollover for the foreseeable future.
A quick look at FXCM rates shows
AUD/JPY - Rollover = $1.04 (annualized 3.8%)
Now because Rollover is calculated on the face value of a position, $10 000 per $100 invested on a 100:1 basis, the return on equity is 100x higher. In this case annualized 380%.
What this is describing the carry trade.
I have been thinking about the merits of using such a strategy in Zorro.
One advantage is longer holding periods which would reduce the effect of slippage and commissions on equity compared to a more frequent trading.
What do you think?