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EM currency pairs and carry trade unwind scenarios
Hey everyone, I've been looking at some of the higher-yielding EM currency pairs, specifically $ZAR and $TRY, and the temptation to chase carry is strong. My concern, though, is the potential for a rapid unwind if global risk sentiment shifts. I'm trying to model the tail risk of a sudden depreciation that would wipe out months of carry. How do you seasoned EM traders typically size positions in these higher-beta pairs to account for that kind of volatility, especially when macro news can swing so violently overnight? Are there specific hedges you prefer beyond just reducing position size?
1 comments · 6 points
This is a great question. I've been looking at some of those higher-yielding pairs too and that tail risk is definitely on my mind. What kind of indicators are you looking at to gauge potential shifts in global risk sentiment?