Instead of losing out to a broker's bid-ask spread, there may be a growing number of people who trade forex by returning purchases. For example, you notice a trend that indicates the Japanese Yen will fall against the US Dollar over the next ten days. Instead of trading with a broker, you make a hotel reservation in Tokyo. Nine days later, you cancel it.
Your bank handles the currency conversion. The difference between the two currencies is added or deducted from your refund amount. Of course, there are risks from bank policies on foreign transactions. Read the fine print of your credit card agreement before trying.
The first I heard of this idea was from a tweet, "I know Forex. I made $75 from a canceled hotel room in Tokyo." Digging deeper, it turns out that this person made travel arrangements in February of 2020 for a March trip. As world events transpired, they had to cancel the reservation.
Between booking the room on February 24 and canceling the visit on March 10, the Japanese Yen (JPY) fell significantly to the US Dollar (USD). The result was a surprise increase of a reported extra $75 credited to their account.
I took a look at the market conditions from this timeframe. On February 24, USD/JPY was hovering at 111, falling to 102 on March 10.
The reservation in February resulted in a theoretical JPY/USD trade. They were buying 111 JPY with every dollar spent. At 1000 USD for the four-night stay, that is 111,000 JPY. On March 10, a USD/JPY settlement resulted in one USD for every 102 JPY. The hotel had to refund the entire 111,000 JPY from their side, resulting in the additional funds earned.
The problem is that it only works with currencies that have a significant discrepancy with the base currency. In this case, the US Dollar (USD). For example, the same trick in a Paris or London Hotel would be far less notable. Besides, according to CreditCards.com, most card issuers charge a 3% foreign transaction fee that cuts into profits.
If interested, Credit Karma has a list of cards with no foreign transaction fees.
It is hard to determine how many people are using this technique for speculation. Instead, you have people sharing happenstance encounters. Could it be used as an actual trading strategy? Maybe.
Contact Me if you know of investors using such strategies in the wild.
© 2020 Todd Moses
The strategies discussed are for illustrative and educational purposes and are not a recommendation, offer, or solicitation to buy or sell any currency or to adopt any investment strategy. There is no guarantee that any strategies discussed will be useful. Todd Moses is not a licensed securities dealer, broker, or US investment adviser or investment bank.