Carry trade strategy

Carry trade strategy - one of the most popular trading forex strategies. It is used not only ordinary traders, but also large hedge funds. The basic principle of carry trade strategy - is to buy a currency with high interest rate and currency trading with a low interest rate. This layout allows you to make a profit not only from the vibrations of the currency pair quotes, but also on the difference in interest rates (swaps). This strategy can only be used under normal global economic conditions. Do not use it during the crisis. Remember that your forex broker should be one of those who pay the swap, so you can make a difference in interest rates.

Features

• Long-term profits.
• Two sources of revenue.
• It only works with a growing global economy.
  

How to trade?

1. Select a currency pair with a high positive swaps (interest rate differential). AUD / JPY, NZD / JPY and GBP / JPY - good historical examples of such pairs.
2. Buy or sell this pair, depending on the direction in which the swap - a positive one.
3. Choose modest size of the position that you could sustain some serious unrecorded losses.
4. Do not place a stop loss (one of the few Forex strategy is not recommended to use stop-loss).
5. Wait.
6. When you feel that earned enough or will you wait for some kind of global financial turmoil, close the position.
   

Example

The graph depicts an example of long-term growth GBP / JPY since the late 2000 to mid 2006, based on the carry trade. Pound had interest rates of about 5% in this period, while the yen was virtually a zero rate, as a result gave a difference of about 5%, multiplied by your leverage. That is, with 1:100 leverage was obtained around 2500% over the period. During this same time a pair GBP / JPY rose to 6500 pips. As you can see, the profit potential is staggering.The problem is that the growing trend ended quickly in 2007 and the traders had very little time to react and close the position. Carry trade can be very dangerous and you should be very careful if decide to use it.

Attention!

Use this strategy at your own risk. EarnForex.com not responsible for any damages that may result to you when using any strategy presented on the site. It is not recommended to use this strategy on a real account without testing it to start a demo account.