Home > FOREX

Currency Carry Forex Trading: Investing Smartly for Further Years

  • Deciding how to trade.
  • Bitcoin investment expectations.
  • How helpful is the carry trade strategy.
  • How do carry trades work.
  • How to profit from carry trade.

Choosing how to trade is not difficult nowadays. Just having access to the internet and soon you will get informed about this new world. Everyone is looking for the right way to trade.

When I first started, I have created a gambling concept out of trading. In my opinion, nothing can determine what can go right or wrong in a trade.

Perhaps the speed of opening and closing operations leaves room for improvement. But there isn't a formula for success to trade.

I see the world of trade and Forex in particular as my second world where I live. That world is full of investment and unending news. Many people consider Forex as gambling or a non-investment related method. Still, there are so many examples of people who have made a lot of money through Forex. Words like: capital advantage, knowledge, and why not luck are included in the vocabulary of successful traders.

These people, apart from the lucky ones, have followed a certain strategy. The investment strategy they have followed has yielded profitable returns.

Investing in Bitcoin today promises revenue soon. Is this called gambling? What about the price of world currencies? Important currencies like the pound, the dollar, and the JPY and many more are honest ways to invest. They just need the right strategy for success.

Or are they another gambling method while people are putting money in virtual currencies?

When I first started trading I had to make up my mind how much money I needed. It was normal that the more the better.  Firstly, my account had $80.000.  Believe me large amounts of the capital provide you a very strong base if you know how to use the leverage.

I chose to follow the currency carry method: from a low-interest-rate currency supporting a buy that moves. I strived to seize the contrast within the rates, which can be high depending on the level of leverage applied.

Why did I follow this strategy?

The carry trade is one of the most famous trading strategies in the Forex market.

The most popular carry trades include buying currency pairs. Australian dollar/Japanese yen and New Zealand dollar/Japanese yen have large interest rate spreads. The first step in placing together a carry trade is to determine which currency gives high production and which one offers a low one.

As of June 2010, the interest charges for the most fluid currencies in the world stood as regards:

Australia (AUD)
4.50%
New Zealand (NZD)
2.75%
Eurozone (EUR)
1.00%
Canada (CAD)
0.50%
U.K. (GBP)
0.50%
U.S. (USD)
0.25%
Swiss franc (CHF)
0.25%
Japanese yen (JPY)
0.10%
 
You can combine and even the currencies with the highest and lowest production. One of the bases of the carry trade tactics is the capacity to gain interest. 

The profit is collected every day for high carry trades with triple rollover provided on Wednesday to consider for Saturday and Sunday rotations.

The regular interest is determined with this method:

Daily Interest=365 % DaysIRLong Currency−IRShort Currency X NV.

where: IR=interest rate
NV=notional value

For instance, applying a 1 lot of AUD/JPY that has a notional of $100,000, we measure interest:

365 % 0450−0.001×$100,000≅$12 per day

The result will not be precisely $12 because banks will use a late interest charge that will shift daily.

It is necessary to understand that this volume can only be made by traders who are high over AUD/JPY. Those that continue decreasing the carry, or shorting AUD/JPY, the interest is given each day.

Greatest carry traders, mainly the big hedge funds that hold a lot of money at stake, are satisfied if the currency does not move. They, however, make the leveraged production.

As long as the currency doesn't collapse, carry traders will get rewarded while they remain. Traders and investors are more satisfied with exercising on risk in low volatility conditions.

Carry trades work when central banks are both rising interest charges or intend to improve them. If a central bank is increasing interest charges, people are looking forward to gathering into the equal carry trade. People drive the value of the currency pair higher in the manner. 

The key is to know the origin of the rate crushing cycle and not the outcome. The first change in monetary policy leads to describe the main turn in the trend for the currency.