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Do You Use Carry Trade?

March 8, 2010 (Last updated on July 21, 2017) by

Carry trade is a popular trading strategy. It is based on buying a high-yielding asset as an investment using the low-yielding asset as funding, so that the cost of loan is less than the yield of the asset you have bought.

In Forex, carry trade is based on buying a currency pair with a high positive interest rate difference (swap) or selling a currency pair with a high negative interest rate difference. Good examples of the long carry trade pairs as of today are: AUD/JPY, ZAR/JPY, and HUF/JPY. Examples of the short carry trade pairs include USD/ZAR and USD/HUF. Often such carry trade positions not only yield the interest rate difference but also produce a normal position profit based on the buy/sell FX rate difference. This happens when the market becomes driven by the carry traders.

However, this strategy is considered dangerous due to the interest rates fluctuations. Also, the currencies with the high yields are often very unstable. During my 4 years of experience as a Forex trader, I had opened only one carry trade position and it was not very successful. And how about you?

Do you use Forex carry trade?

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If you have some interesting comments or questions regarding the carry trade in Forex, please feel free to reply using the form below.

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