What is a carry trade?

A carry trade is a trading strategy that involves borrowing at a low- interest rate and investing in an asset that provides a higher rate of return. A carry trade is typically based on borrowing in a low-interest rate currency and converting the borrowed amount into another currency.

What is a guide to carry trading?

A guide to carry trading, one of the most simple strategies for currency trading that exists to benefit off interest rate differentials and trends A guide to carry trading, one of the most simple strategies for currency trading that exists to benefit off interest rate differentials and trends Skip to content The Balance SearchSearch

How do I start a carry trade?

The best way to first implement a carry trade is to determine which currency offers a high yield and which offers a lower one. The most popular carry trades involve buying currency pairs like the AUD/JPY and the NZD/JPY, since these have interest rate spreads that are very high.

What is an example of a currency carry trade?

As an example of a currency carry trade, assume that a trader notices that rates in Japan are 0.5 percent, while they are 4 percent in the United States. This means the trader expects to profit 3.5 percent, which is the difference between the two rates. The first step is to borrow yen and convert them into dollars.