Is there any way to combine FOREX instruments to receive interest on $100K while spending only $2K?
If I buy 100K USDCAD (for example), I only need $2K margin. Every night, I'm charged the difference in interest rates on the entire $100K. This is called the "rollover rate" or "swap rate". It also explains why USDCAD forwards (delivery in 6 months instead of 1 day) have a different price than spot USDCAD.
This makes sense, because everyday I hold on to CAD, the other guy loses a day's worth Canadian interest. Of course, he has "my" USD, and I lose a day of US interest. However, these interest rates are different, so one of us has to pay the other (currently, I'd pay him, since Canadian interest rates are higher, so he's losing more interest than I am).
Now, is there any clever way to combine FOREX transactions so that you receive the US interest on $100K instead of the $2K you deposited as margin?
I know you can do this w/ other currencies, and sometimes make 10%+, but the risk is that the other currency will drop more than 10% (vs the US dollar) in a year, so you end up losing money.
One thought would be to create some sort of triangular arbitrage, so that you're ultimately getting "USDUSD".
I realize that:
The law of no arbitrage says this is impossible. However, I don't 100% believe in this law.
I actually pay the difference in interest PLUS a broker premium. Since USD has a low interest rate, this premium might wipe out any profit.
You can do the same trick w/ FOREX forwards, perhaps even avoiding the broker premium, although you still pay a pip spread.
If I setup a triangular purchase, I'm paying the broker spread on 3 different parities, which, again, may negate any profit. Other combinations may be even worse.
Depositing $2K to hold $100K is dangerous (unless you've found perfect, instantaneous arbitrage), since 2% is the minimum margin. Something like 5% would be safer.