The Carry Forex Trading Strategy

The Carry foreign exchange trading strategy is one of the most well-known fundamental foreign exchange strategies. It is utilized not only by the average retail traders but also by the prominent hedge funds. The key fundamental of the carry trading strategy is to purchase currency with a tremendous interest ratio and auction with a low interest ratio. Such establishment provides gain not only from the currency match’s irregularity but also from the interest ratio diversity (overnight interest rate). This trading strategy should only be utilized under the standard universal economic circumstances. You should never utilize it during the economic crisis. Keep in mind that your foreign exchange broker should be one of those that indeed settle overnight interest ratio variation if you want to gain from it. You will not be able to gain from it if your foreign exchange broker is “swap-free”.

Features

  1. Long-term gain potential.
  2. Two origins of profit.
  3. Works only with the flourishing universal economy.

How to Exchange

  1. Select a currency match with a slight positive interest ratio variation (AUD/JPY, NZD/JPY and GBP/JPY are good historical examples of such pairs).
  2. Move long or short on the selected pair, relying upon on the management with the positive overnight interest ratio for this pair.
  3. Select limited position size, so that it would be able to endure an important paper loss
  4. Do not establish a stop-loss (one of the few Forex trading strategies, where stop-loss is not recommended).
  5. Stand by.
  6. When you feel that you gained plenty or when you anticipate some universal financial disruption, close the position.

Instance

The Carry Forex Trading Strategy

The instance diagram above depicts a long-term “carry trade” progress of GBP/JPY from past 2000 early on 2007. The pound had an interest ratio of approximately 5% throughout the timeframe, while the Yen had its ratio close zero, occurring in an overnight ratio of approximately 5%, which is then multiplied by your bargaining chip. With 1:100 bargaining chips, it is about 3,000% over the whole timeframe.  In the course of the period, GBP/JPY also increased by more than nine thousand and three hundred pips. As you can observe, the gain potential is quite outstanding.

The bad situation is that the uptrend concluded very quickly in 2007, and traders had limited time to respond and close their positions. The carry exchange is absolutely risky, and you should be really cautious when choosing to utilize it.

Danger-SignUtilize this strategy at your own risk. WindsorForex.com cannot be responsible for any losses associated with using any strategy presented on the site. It’s not recommended to use this strategy on the real account without testing it on demo first.

 

 

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About The Author

Mike N

Financial Trading Systems Design Expert

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