How to Buy Currency Trades that Pay “Dividends” Part I

By Sean Hyman In stock investing, there are “growth” investors and “income” investors. But did you know that the vast majority of growth stocks don’t offer dividends at all? (And for the ones that do offer dividends – you have to shop around to find yields worth your time.)

Did you know that with currencies, you can have the best of both worlds? It’s true. You can have something that grows nicely AND reaps a decent income stream too.

It’s possible to do this in a couple ways. First of all, you can secure both income and interest with a few Forex pairs.

The Biggest Mover of the Year…and Biggest Income-Producer

What pairs am I talking about? Well, right now they are mainly Aussie pairs (AUD/USD, AUD/CAD and AUD/JPY). So far this year, Australia has been the biggest percentage gainer amongst the developed, industrialized nations.

These pairs will reap over US$300 a year in income PER MINI LOT. (Remember: a mini-lot in Forex is 10,000 units of currency, and one of the smallest amounts of leverage you can use to place your trades…so it’s the conservative Forex bet. In contrast, a “standard lot” is 100,000 units of currency per one trade, and a bit more aggressive trade.)

That means, if someone just had one standard lot of any one of these pairs, that would be over US$3,000 in income each year PLUS whatever you gained in appreciation.

It’s not uncommon to see these pairs move 8% to 15% in a year on a non-leveraged basis. However, in spot FX you can use leverage to grab even more gains. So this is my number one way to earn income.

Exotic Currencies: More Leverage, More Opportunities for Income

Now if someone is willing to handle even more volatility, then you can delve into exotic currency pairs like USD/ZAR (South African rand) and USD/TRY (Turkish lira).

The rand pair earns over US$500 per year per mini-lot right now or over US$5,000 a year per standard lot. While that is exciting…check out the lira!

The USD/TRY (lira) will earn about US$600 a year per mini lot right now OR a whopping US$6,000 per standard lot owned per year! So these are my top picks in the spot FX market and my preferred way to earn DAILY carry interest.

Of course, please keep in mind that you would have to hold these Forex pairs for a whole year to earn this kind of interest (also, that’s assuming rates don’t change over the course of the year.). However, you do earn interest daily on currency pairs for shorter-term trades…

Who Pays Interest on Forex Trades?

So where does this DAILY interest come from? Basically it comes from your market maker (read: FX dealer.). You earn interest on any currency pair that you hold through 5pm EST each day. So your market maker (FX dealer) looks to see who is holding it at that moment, and they credit you with the daily interest – that’s separate from capital gains and appreciation.

Actually, you earn interest three times on Wednesday, for interest earned from Saturday and Sunday. Then you earn interest once a day at 5pm on the other weekdays. This equals out to seven days of interest within essentially five days of trading.

Honestly, that’s only half the story. There’s another way to earn dividends on your currency trades – even if you’re not ready to try Forex trading. I’ll tell you about it tomorrow. Till then…

Best Regards,
Sean