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APPROVEDFX Carry Risk Committee · Apr 09, 2026

EM FX Carry v2

Systematic FX carry strategy in emerging market currencies, enhanced with momentum filters and risk-parity weighting across EM regions.

Strategy Score
84

Survives EM crisis bootstrap. Capacity-limited to $80M before slippage degrades Sharpe.

Performance Metrics
WF Sharpe
1.48
OOS Sharpe
1.39
DSR
0.78
Regimes
3/5

How It Works

Long high-yielding EM currencies, short low-yielding G10 currencies, with dynamic overlay adjusting for local macro conditions and risk sentiment.

Mechanics

  1. 1.Rank 15 liquid EM currencies by interest rate differential vs USD
  2. 2.Apply momentum filter (exclude currencies with -10% 3M returns)
  3. 3.Risk-parity weight positions by realized volatility
  4. 4.Overlay: reduce exposure when VIX > 25 or EM CDS spreads widen >200bps
  5. 5.Rebalance monthly or when risk thresholds trigger

Signals

Interest rate differential (primary carry signal)3-month currency momentumLocal sovereign CDS spreadsGlobal risk sentiment (VIX, EM ETF flows)

Performance Results

Sharpe Ratio
Walk-Forward1.48
Out-of-Sample1.39
In-Sample1.62
Returns
Annualized14.1%
Max Drawdown-18.4%
Calmar Ratio0.77
Consistency
Win Rate58%
Profit Factor1.9
Avg Win/Loss2.1% / -1.8%
Capacity Analysis
Max Capacity
$80M
Current Slippage
3bps
At Capacity
12bps

Implementation

Instruments

FX forwards (BRL, MXN, ZAR, TRY, INR, etc.) vs USD

Execution

Prime broker FX platform, competitive multi-dealer pricing

Rebalancing

Monthly (first Monday) or when risk overlay triggers

Risk Limits

Max 8% portfolio vol, max 15% per currency, -20% stop loss

Technology

Python strategy engine, Bloomberg/Reuters data, FX aggregator API

Risk Analysis

EM Crisis

High Impact

CDS overlay reduces exposure before blowups, diversification across regions

Rate Convergence

Medium Impact

Momentum filter exits crowded trades early

Liquidity

Medium Impact

Focus on 15 most liquid EM pairs, avoid exotic exposures

Political Risk

Medium Impact

Monitor election calendars, reduce size around key events

Backtest Results

Period
Jan 2010 - Mar 2026
Total Trades
482
Avg Holding
28 days
Best / Worst Year
+24.6% (2016) / -11.2% (2015)

Stress Period Analysis

2013 Taper Tantrum-9.1%

Drawdown within limits, recovered Q4

2018 EM Selloff-7.3%

Risk overlay reduced exposure ahead of crisis

2020 COVID-11.2%

Sharp initial loss, profitable recovery in H2

Deployment Status

Status

Live trading since Apr 12, 2026

Allocation

$8000 (8% of AUM)

Brokers

XTB,

Monitoring

Daily risk reports, monthly strategy committee review