The Carry trade – Free Training Course in Forex – Lesson 23

There is a system of trade wins more money and is considered a way spread among Western countries, and its advantage is profit and take advantages of changes in the spreads between the interest rates of different currencies, this method is called the Carry Trade.

Do you know what does mean Carry trade!!

Simply in order to understand its meaning you must have a background about the following:

·         How do currency pairs affect by the rise and fall of interest rates.

·         And also you have to know how interest moves.

·         What are the factors that lead to increase interest rates or reduced?

·         And also every trader watching Carry Trade to analyze economic data related to interest rates, such as inflation data and growth and central bank policies.

Let's take an example...

Let's assume that a trader went to the bank and borrowed $ 10,000 the amount of an interest rate of 1% of the total of $ 10,000 then he was trading of those funds to buy bonds worth $ 10,000, pays 5% per annum, so the profit is 4% per annum which is the difference between the interest rates.

Like this example we can use Carry Trade.

That means  opening deals in currencies and monitoring interest rates, control them in the coming periods and carry these open deals are too long.

Carry Trade strategy is one of the strategies in the very lucrative Forex and professionals depend on it from speculators and large investment funds and, we find that investment funds depend heavily annually, and it is common to use a leverage of 10:1 in most of Carry Trade processes.

Carry Trade risks:

Risks of Carry trade lie in the high frequency in the currency markets, so this strategy requires a large knowledge of market and its engines, and other risk on Carry trade traders are the processes of flowing contracts, they are flowing contracts in the timing of a close and exit of large amounts of the contracts in tight time and concomitant dramatic movements in the market and this process is called liquidation carry trade.

Another common type of Carry Trade types called daily carry trade, this type based on something that has been acquainted on it in strategy carry trade in the basket or the concept of basketball is dividing the basketball its proximity to several pairs and used by professionals to diversify pairs to overcome the fluctuation of the market and the protection of the investing portfolio.

As we often they use leverage from 1:10 to reduce the risk of volatility, and if we take the example of a basket of Carry Trade in which the pairs are divided to pairs of long-term and other short-and the other used as inverse Hedge , for example, if this basket contains on the pound against the Swiss franc and the used leverage  was 1 : 10 the result of this carrying trading for one year is around $ 600 from per decade and the Japanese yen and the New Zealand dollar and the Australian dollar frequently are used,  These pairs flowing Carry trade traders saliva, and combing the results of each pair, and the result is too often profits of more than 100.

Carry trades is frequently used by the Japanese for their dependence on the Japanese currency with a low yield, so how can take advantage of Carry trade traffic analysis to take advantage of it in daily trading:

(1) Reading the interest rates for each pair you trade it.

(2) Identification of the currencies that are expected upward trend with higher interest rates and buy that currency.

(3) Controlling the movement of pairs that are related to carry trade operations because the closure of these contracts makes a movement for this pair.

(4) It should monitoring Yen pairs well, and some say that the closure of these contracts quarterly, but no one can predict the date of closing Carry contracts.

Large funds retain their contracts annually so it can monitor yen pairs also with the end of the year (the end of the fiscal year in Japan marks the month of March so Carry trade traders often moves to repay their loans before the end of the year a few days) and it should take advantage of this atmosphere and the conditions created by the repayment of Carry trade loans.