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Carry trading Print E-mail
fxzone14Carry trading is another of the methods of Forex trading which is both relatively simple and quite popular. To have a broad introduction to methods of carry trading you will need to study fully the details. The basic terms involves buying a pair with the high interest currency purchased against a lower interest currency then you will have the difference in interest between the two being paid to you by a broker for every day that you hold the traded pair.  This payment is made on the basis that your traded pair has been traded in the direction of positive interest.



In general the traded pair is previously identified from countries who have typically higher interest rates and then traded to a currency which has a low interest rate. This type of trade has been analysed by traders and is best suited in particular market circumstances. A key element in the strategy of Carry trading is the choice of currencies with which you make the transaction.

There is identified currency pairs which have already proven to be more likely to be profitable with carry trade and those usually chosen would be GBP/JPY – Great British Pound to Japanese Yen, GBP/CHF – Great British Pound to Swiss Franc, AUD/JPY – Australian Dollar to Japanese Yen, EUR/JPY – Euro to Japanese Yen, CAD/JPY Canadian Dollar to Japanese Yen and USD/JPY – US Dollar to Japanese Yen. Within the world of Forex trading these pairs may also be be referred to using terms such as AUD/USD “Aussie”, EUR/USD “Euro”, GBP/JPY “Geppy”, NZD/USD “Kiwi”, USD/CAD “Loonie”, USD/CHF “Swissy”,  USD/JPY “Gopher” and USD/CAD “Beaver”.

Terminology in trading on the Forex market can be confusing to anyone who is new to the market which is why all reputable online Forex trading platforms will encourage newcomers to start off with a demo account and take as many tutorial guides in order that they become reasonably knowledgeable about Forex trading.


The observation of buying an economy that is strong and selling the economy that is weak which is the essence of carry trade strategy has been rocked by the current global crisis which has thrown the typically stronger currencies and economies into a weaker economic position, and in turn weakened even further those economies typically traded as the weaker of the pair. This practice of Carry Trade continues as necessity requires and will continue to require a good analysis on the part of the investor before entering into this type of trade.
 

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