Strategies: Trade Forex based on the Forex Carry Trade

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Strategies: Trade Forex based on the Forex Carry Trade

Post  fxguru on Tue Sep 20, 2011 1:44 am

The Carry Trade is a sophisticated strategy that can be accomplished using the Forex market due to its unique traits. The basic concept of the carry trade is to borrow a low-yielding (low interest rate) currency by selling it in order to invest in a high-yielding (higher interest rate) currency by buying it. Forex pairs accomplish this when the high-yielding currency is on the buy side of the spread and the low-yielding currency is on the sell side.

The risk of making the carry trade is the potential for the short side of the position to gain in value, whereby it becomes more expensive to buy back the borrowed currency. There is risk of loss inherent in every kind of trading strategy.

The Bank of Japan maintained a low to zero interest rate for many years making the USD/JPY currency pair a logical choice for utilizing the Forex to execute a carry trade.

Best trade to you!



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