What is Currency Carry Trade

monarchcb.com - Currency carry trade, if we have previously discussed what a carry trade is, then in this lesson we will learn about how we can profit from the comparison of interest rates between currency pairs.

And of course you can apply it when carrying out the forex trading business easily.

And we need to know that we have previously discussed that this carry trade strategy is a strategy that is tried by hedge funds or financial managers in the financial market. And for more details on this matter, please follow this next description.

In the forex market we already know that money is traded in pairs, for example when you buy USD or CHF it means that you are buying US Dollars and selling Swiss francs at the same time.

The thing that happens when you do the business above is that you have to pay interest on the currency you are selling and you will also get a return in the form of interest on the currency you are buying.

The thing that makes the carry trade very special in forex trading is that there is a payment of interest to you on every trade you make. Technically all your trading positions will be closed at the end of the day but you won't be able to see them the next day.

Your agent will close and open your trading positions every day and after that they will share the ratio of interest rates between currency partners for the business you did last night. And after that the amount of interest that has been calculated previously will be handed over or burdened to you.

Interest that is calculated initially is pronounced with excessive rolling or carrying.

The existence of leverage provided by agents in the forex market makes this carry trade very popular among forex traders. It should be noted again that the bottom of forex trading is that there is a limit which means you only need a very small capital to open a trading position because most of the shortcomings will be lent by your agent.

Many agents give you relief that you only need to pay 1% or 2% of the entire business.

To be more clear about the carry trade, let's see how Joko may want to make a profit and lose when trading forex.

On this day Joko was given a gift by his boss of $10. 000 because of its good performance. Because today he doesn't want to use the money so he wants to put the money first in the bank in the form of savings with an interest rate of 5% and in his mind he thinks that with money of $ 10. 000 means that at the end of the year it will be $10. 500 causes an additional $500 from the 5% return on results.

Because Joko also practiced forex and was an experienced trader, so he remembered what is called the carry trade, he also opened an account and started looking for a currency partner that could provide big returns.

It also chooses a currency companion that offers a +5% interest rate ratio as well. Even though the returns given are similar to deposits, there are some things that deposits cannot offer, namely the presence of leverage and limits.

After that he put in all his initial money and opened a business position of $100. 000. because the broker only requires 1% of Joko's capital, Joko only needs to have a limit of $1,000 (leverage 100: 1). So Joko is currently managing a $100 business. 000 with a yield rate of +5%.

Furthermore, it is possible to capitalize on Joko

• Joko faced loss, the currency companion that Joko bought faced a very deep decline to hold the limit position and Joko faced the call limit. As a result, the remaining capital is as much as the limit is $ 1000
• The price of the counterpart currency does not change until the end of the year. In this case Joko faces no profit or injury but he will only get a return of 5% of the $100 business figure. 000 is $5000.
• The price of the currency pair faces a very important increase, so that not only gets a response from the 5% interest rate, which was originally $5000, Joko also gets a bonus from the escalation of the currency pair price.

Due to the presence of a leverage of 100:1, Joko has the opportunity to get a return from the interest rate of 50% of the $10 capital. 000.

Furthermore, this is an illustration of a currency companion that can share the ratio of interest rates of 4.4% in September 2010.

If you open a BUY (LONG) AUD or JPY position until you want to get a profit of +4 interest rates. 4% but if you open a position the opposite is SELL( SHORT) AUD or JPY so you will also be charged an interest rate of -4.4%.

Well, that was originally a record of what that thing was currency carry trades that can share the results of a comparison of interest rates. But don't get in the wrong position because if you get it wrong, then the legal thing is the opposite, you will be charged interest.