What is carry trading
A carry trade is typically based on borrowing in a low-interest rate currency and converting the borrowed amount into another currency.
Forex Strategies: The Carry Trade
Generally, the proceeds would be deposited in the second currency if it offers a higher interest rate. The carry trade strategy is best suited for sophisticated individual or institutional investors with deep pockets and a high tolerance for risk.
Carry trades are popular when there is ample appetite for risk. However, if the financial environment changes abruptly and speculators are forced to unwind their carry trades, this can have negative consequences for the global economy.
But as the global economy deteriorated in the financial crisisthe collapse in virtually all asset prices led to the unwinding of the yen carry trade.
Key Takeaways A carry trade what is carry trading a trading strategy that involves borrowing at a low-interest rate and re-investing in a currency or financial product with a higher rate of return. Because of the risks involved, carry trades are appropriate only for investors with deep pockets. This carry-trade strategy may net you either a profit or a loss.
How Do Carry Trades Work? This tactic is the siren call of the carry trade. Compare Accounts.