Understanding the Carry Trade
|In this session we'll cover a strategy favored by large banks and hedge funds but lesser known among retail traders. The carry trade in forex involves borrowing one currency at a low interest rate and simultaneously investing in a currency that yields a higher rate of return. In this presentation we'll explore this strategy, covering the following points:
- History of the carry trade: how the yen carry trade of 2004-2008 played out.
- Interest rate differentials: The rate that you either earn or pay out.
- The role of leverage: how leverage can dramatically amplify earnings from the carry trade.
- Carry trade entries: looking for trend in a potential carry trade pair.
- Fundamental factors: why carry trades do well in 'risk on' environments and poorly in times of 'risk off' sentiment.
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