Strategy: Gold Currency Strategy

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Strategy: Gold Currency Strategy 2017-03-03T15:29:36+00:00
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  • Vangelis
    Moderator
    Post count: 125
    #31007 |

    Forum for the Gold Currency Strategy.

  • Timothy Riley
    Participant
    Post count: 6

    Very glad to see this strategy added. Some guidance on the practicalities and tax implications (for a US investor) of the various approaches to implementing it would be much appreciated. An advantage I see of the ETFs is that they are straightforward to trade; disadvantages are that CROC, EUO and YCS have fees of around 1% and give rise to K-1s. I have less experience with futures and with currency pairs. Do the tax treatments of the three approaches differ significantly?

  • florentch
    Participant
    Post count: 1

    Experimenting with the concept of this strategy, I have seen limitations with CROC daily volume (as in unfilled orders) even for balances in the 10k range, and quite similarly for YCS but starting with 100k balance.

    What is your take on these limitations and eventually how does this impact including the GCIS strategy in a real-life set-up ?

  • Charlie Moore
    Participant
    Post count: 9

    I liked this strategy idea, especially as part of a larger strategy of strategies. But I also feel it has issues with implementation, at least for me at Interactive Brokers in an IRA account.

    During opening of a position in YCS I got an error stating this security is not allowed in IRA accounts. I was able to open a position in YCS in my regular brokerage account. Apparently, IB has removed about 200 securities from IRA accounts.

    Here is what they said to me: We have implemented a restriction whereby IRA accounts will be prohibited from opening positions in a list of approx. 200 Limited Partnership securities these type of securities introduce reporting considerations and costs that we’ve concluded are not justified given the overall low level of client interest in them.
    As a result of this decision, IB is no longer accepting opening orders for such securities and we ask that you either close or transfer these positions to an IRA account maintained with another broker at your earliest convenience.

    On this list are YCS, EUO, CROC, and UUP. I have the full list if anyone is interested.

    Would it make sense to buy puts on FXY?

    • Alexander Horn
      Keymaster
      Post count: 306

      IB has restricted three times leveraged ETF from their IRA accounts. You can instead use non-leveraged ETFs and increase their allocation to keep the intended leverage ratio. This dilutes the overall effect in the portfolio, e.g. you need to allocate less to GLD to keep 100% overall, but is the only way currently.

      Alternatively, you can buy the 3x ETF in a non-deferred account as you mention. Buying puts also will not be allowed in your deferred account, and doing so in a regular account requires very good knowledge of the “greeks”.

  • Mark Faust
    Participant
    Post count: 4

    Alex,
    I ran into the same issue with YCS and instead, I am using the ETF DXJ which has a correlation of .76 to YCS.
    It is doing rather well in this environment even though it is only a 1X instrument. You said one could adjust the leveraged ratio to account for the 3x YCS position….I want to make sure I would be doing this correctly…
    Assuming a 60GLD/40YCS ratio….(3:2)
    To get the correct leverage using my DXJ example, would the correct resulting “leveraged ratio be 3x on the DXJ side??
    something like 3:6 or 1:2???
    Thus 33GLD/67DXJ??
    Or am I calculating the implied 3x incorrectly??

    thx
    Bama

    …..You can instead use non-leveraged ETFs and increase their allocation to keep the intended leverage ratio. This dilutes the overall effect in the portfolio, e.g. you need to allocate less to GLD to keep 100% overall, but is the only way currently……

    • Alexander Horn
      Keymaster
      Post count: 306

      Hi Mark,

      yes, my brain just does it the other way around. 60 GLD / 40 YCS equals 60 GDL / 120 DXJ, total 180 so divided by 1.8 would be 33 Gld and 67% DXJ. So you dilute by a factor of 1.8, which means also returns, etc would be reduced by that factor .. bit less considering the loss leveraged ETF occur.

  • Mark Faust
    Participant
    Post count: 4

    Thanks Alex…As long as we got to the same answer, we should be fine….
    I decided to do a 50/50 with DXJ/GLD…which in effect gives me a 1.5x on the DXJ for this go around….
    I will see how it goes…
    thanks
    Mark (bama)

    Hi Mark,
    yes, my brain just does it the other way around. 60 GLD / 40 YCS equals 60 GDL / 120 DXJ, total 180 so divided by 1.8 would be 33 Gld and 67% DXJ. So you dilute by a factor of 1.8, which means also returns, etc would be reduced by that factor .. bit less considering the loss leveraged ETF occur.

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