Spread trading strategies refer to investors borrowing low-interest currencies to invest in currencies of high-yield countries, such as emerging market currencies. Investors can make a profit margin from it.
This strategy works if liquidity is abundant, the global economic background is good, and it is important to note that currency volatility is almost zero. On the whole, these conditions seem to be available at present.
Market volatility has fallen sharply this year as major central banks have decided to suspend interest rate hikes. Societe Generale analyst Kit Juckes said the "boredom" of the market so far in 2019 had been the best contributor to the success of spreads trading, with Foreign Exchange Volatility currently near its lowest level in years.
Therefore, according to HSBC's Global FX Carry Index, the return on spreads trading in 2019 was 5.5%. In 2018, it fell by 1.4%, when interest rate hikes in the United States led investors to flee emerging markets that prefer arbitrage.
Andreas Koenig, head of the Foreign Exchange Department of Eastern Huili Asset Management, said that the current environment is a "textbook" example of spreads trading.
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