A small scale 3-years term of loan with monthly repayment of principal and interest payment have been tested to be traded by using the strategy. The loan was disbursed by last December 2011 and both the principal repayment and monthly interest dues are paid timely. The balance of the loan principal plus interest payment is expected to be fully repaid by end of June 2012. The cash available after fully repayment of principal plus interest is expected to about 2x the original principal of the loan, which will be managed continuously. At such, a 3-years term loan are fully repayable in 6 months.
Another small scale 1-year term loan with quarterly interest payment only and the principal repayable by end of the one year is also traded by using the strategy. The loan was disbursed by April 2012. The loan also is expected to be fully repayable by end of June 2012. Similar to above, the cash available after fully repayment of loan principal plus interest due will be about 2x the original principal.
The loan proceeds are traded at the lowest risk.
One of the primary interest of the strategy is to trade commercial loans from lending banks and the creditline granted by the brokers, which is the largest source of funds in the capital market and to reduce the dependance of the strategy to global investors' funds.
Selected brokers allow the funding of the accounts by the combination of "cash plus marketable debt securities", "cash and bank guarantees", and "cash and standby letters of credit" and loan proceeds. Accordingly, fund manager/trader and the investors can pledge "less and lesser performance of assets" or "non-performing assets" as collateral for the issuance and delivery of bank guarantees or standby letters of credit for FX trading. To do so, the lending banks will need "sample of loans" which have been successfully traded with the principal and interest fully repaid ahead of the loan term.
At such, equilibrium trading strategy will also have the same model with carry traders, of whom to borrow at low interest rate currencies and to invest them into high yielding currencies. However, equilibrium trading strategy can borrow from low to high interest rate currencies and to invest them into low and high interest rate currencies. Johanes L Sitanggang, the principal researcher and developer of equilibrium trading strategy
