http://www.thejustinian.com/2006/11/05/todays-carry-trades/ Financial News Worldwide Sun, 05 Feb 2012 11:21:24 +0000 http://wordpress.org/?v=2.0.4 http://www.thejustinian.com/2006/11/05/todays-carry-trades/#comment-12 Tue, 14 Nov 2006 07:59:39 +0000 http://www.thejustinian.com/2006/11/05/todays-carry-trades/#comment-12 [...] [For the uninitiated, the basic concept behind averaging down is to “scale” into a position and thereby improve one’s entry price. If you purchase 100 shares of GOOG at 466, and another 100 at 430, your average price will be 448, which is a vast improvement on your initial entry. Overeager traders use this as a “crutch” that allows them to take small initial positions to avoid missing out on potentially big moves, and then add to those positions if the trade moves against them. Others who are carry trading might take the interest they are earning and “reinvest” it in the position, even if it has moved against them in the meantime. In a market like foreign exchange, where the bid-ask spread is the primary cost of a trade, averaging down becomes even more cost-effective, in that no additional commissions are being paid each time a new portion of the position is taken on.] [...] […] [For the uninitiated, the basic concept behind averaging down is to “scale” into a position and thereby improve one’s entry price. If you purchase 100 shares of GOOG at 466, and another 100 at 430, your average price will be 448, which is a vast improvement on your initial entry. Overeager traders use this as a “crutch” that allows them to take small initial positions to avoid missing out on potentially big moves, and then add to those positions if the trade moves against them. Others who are carry trading might take the interest they are earning and “reinvest” it in the position, even if it has moved against them in the meantime. In a market like foreign exchange, where the bid-ask spread is the primary cost of a trade, averaging down becomes even more cost-effective, in that no additional commissions are being paid each time a new portion of the position is taken on.] […]

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