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First of all I would like to recommend a great document out there - "DB Guide to Exchange-Rate Determination" which was written by Deutsche Bank in 2002 and is overfilled with FX rate determination, forecasting methods which can be used for all short term, mid-term and long term trading. If you haven't read it, look for it, download to your Kindle and take the time. It is worth reviewing. :)

In the documents several FX trading strategies are described with reference to many academical papers and literature. One of them - the Forward-Rate Bias strategy. Its results are stunning for longer term FX trading and its sharp ratio has beaten the S&P500 twice. As the DB says: "This is the bedrock of Deustche Banks's Forward-Rate Bias trading system".

  • Forward Premium and Discount

It is necessary to understand what Forward Premium and Discount is before diving deeper in to this.

Premium - Situation where the spot futures exchange rate, with respect to the domestic currency, is trading at a higher spot exchange rate then it is currently. A forward premium is frequently measured as the difference between the current spot rate and the forward rate, but any expected future exchange rate suffices.

Discount - situation where the domestic current spot exchange rate is trading at a higher level then the current domestic futures spot rate for a maturity period.[1]


        N - represents the maturity of a given forward exchange rate quote
        d - represents the number of days to delivery
        P - is the premium (if positive) or discount (if negative)
        F - is the forward exchange rate
        S - is the current spot exchange rate[2]

  • Forward Bias Strategy - Trading the Bias

"Favorite approach to trading the forward-rate bias is to adopt a diversified strategy to exploit the fact that currencies trading at a forward discount tend to outperform those currencies trading at a forward premium".[3]

The recommendation is "going long the three highest-yielding currencies in the industrial world and going short the three lowest-yielding currencies in the industrial world. Net long/short positions are put on at the beginning of each month and then closed at the end of each month. This process is repeated each month over time". [4]

  • Long Run Track Record for USD-Based Investors

This is truly old backtest and I would be really interested whether it can perform this good in todays market. So if there was a demand for it, I would dive into that ;o) Write a comment if you want to see it.

If you like the FX Trading article, leave message or like. You can also check out some of my latest Forex blog posts on the following backlinks at

A Journey Through the History of Forex Market Cycle Theories

Trading FX with the RSI



[3][4] Michael R. Rosenberg, David Folkerts-Landau. The Deutsche Bank Guide to Exchange-Rate Determination. 2002, Deutsche Bank.

Daniel Stasziek - trading since 2009. If you want to start trading, I suggest you follow the general advice: "run very quickly, the other way."


  • Hi Daniel,

    Somehow I missed this trading tip and a pretty good one at that. Interesting article and well done, thanks for sharing and I will take a look at those links you posted. It seems this post made the front page so congratulations.


  • interesting - i will take a look ....certainly interesting to look at basket trading the low vs high interesting yielding currencies under certain conditions ......especially if the high yielders have been perhaps underperfoming and are due to perhaps regain some strength ? .....hmmmm 

    • Hi Neil,

      the doc mentioned in the blog is really worth reading, if you were interested I would send you it in PM. 

      From what I remember it does not care whether it was underperforming or not, it just follows the rules above. However it is a good point by you and probably could give a better results. On the other hand we would have to filter it more so from going long 3 highest-yielding and short 3 lowest-yielding, we would have just to 2 or 1 to trade.

  • hey Daniel - thanks for the input - i have loaded from somewhere already and on my reading list ......its more of an interest thing for me ....Forexmosperian (peter) got me back into scalping a few years back now and its what i do ..........I find trading higher TF's more profitable.... but in truth its not got the daily Volume of trades i need watching paint dry :)

    • Few years back I also needed to see the action. But I was not able to set the SL properly when scalping and then the whole risk management was one big mess. So I found out it is not for me for now and mby later I will join the scalpers party =)

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