{"id":6522,"date":"2025-01-08T10:44:43","date_gmt":"2025-01-08T10:44:43","guid":{"rendered":"https:\/\/www.alcircle.com\/blog\/?p=6522"},"modified":"2025-01-08T10:44:44","modified_gmt":"2025-01-08T10:44:44","slug":"hedging-with-jorge-episode21-understanding-borrowing-in-carry-trades","status":"publish","type":"post","link":"https:\/\/www.alcircle.com\/blog\/hedging-with-jorge-episode21-understanding-borrowing-in-carry-trades","title":{"rendered":"Hedging with Jorge #Episode21: Understanding borrowing in carry trades"},"content":{"rendered":"\n<p>Carry trades are a key strategy in commodity trading, and today, we\u2019re diving into the concept of borrowing. Let\u2019s break it down with an example.<\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<div class=\"youtube-embed\" data-video_id=\"6qy-VwI_PnI\"><iframe loading=\"lazy\" title=\"Hedging with Jorge #Episode21: Understanding borrowing in carry trades\" width=\"696\" height=\"392\" src=\"https:\/\/www.youtube.com\/embed\/6qy-VwI_PnI?feature=oembed&#038;enablejsapi=1\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><\/div>\n<\/div><\/figure>\n\n\n\n<p><\/p>\n\n\n\n<p>Imagine you\u2019re a speculator, and you\u2019ve taken a short position for April. Now, you realize you need to move this position to June. Can you just call your broker and ask them to \u201cshift\u201d your April short to June? Unfortunately, it doesn\u2019t work like that.<\/p>\n\n\n\n<p><strong>Here\u2019s what happens:<\/strong><\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>Closing the April Position: To move your position forward, you must close the current contract by doing the opposite action. Since you\u2019re short in April, you\u2019ll need to buy April to close it.<\/li>\n\n\n\n<li>Opening the June Position: Simultaneously, you\u2019ll sell June to open a new short position for that month.<\/li>\n<\/ol>\n\n\n\n<p>This combined action of buying the nearer month (April) and selling the later month (June) is known as borrowing. It\u2019s a key part of managing positions in the futures market.<\/p>\n\n\n\n<p><strong>Why is it called borrowing?<\/strong><\/p>\n\n\n\n<p>Borrowing in this context means shifting your position forward in time. You &#8220;borrow&#8221; from the future by selling a later contract while closing the current one.<\/p>\n\n\n\n<p><strong>What\u2019s next?<\/strong><\/p>\n\n\n\n<p>Borrowing is just one type of carry trade. The other, lending, involves the reverse process. We\u2019ll explore lending in detail next time, along with how the curve behaves when the market is in contango.<\/p>\n\n\n\n<p>Stay tuned for more insights on carry trades and the nuances of trading strategies!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Carry trades are a key strategy in commodity trading, and today, we\u2019re diving into the concept of borrowing. Let\u2019s break it down with an example. Imagine you\u2019re a speculator, and you\u2019ve taken a short position for April. Now, you realize you need to move this position to June. Can you just call your broker and [&hellip;]<\/p>\n","protected":false},"author":89,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":{"0":"post-6522","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-open-forum-for-aluminum-community-blog"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Understanding borrowing in carry trades<\/title>\n<meta name=\"description\" content=\"Carry trades are a key strategy in commodity trading\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.alcircle.com\/blog\/hedging-with-jorge-episode21-understanding-borrowing-in-carry-trades\" \/>\n<meta property=\"og:locale\" content=\"en_US\" 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