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Chapter 26, Part I. Let's Start with Carry

Discussion in 'Complete Trading Education- Forex Military School' started by Administrator, Feb 8, 2012.

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  1. Administrator

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    Part I. Let’s Start with Carry. [​IMG]

    Commander in Pips: Today we start another chapter that will give us a better and detailed view for some term that we’ve talked of previously. Today's term is “Carry trade”. If you remember in the Fundamental Analysis chapter and in some chapter before that, we have shed some vague light on this thing. Now the time has come to speak about in more detail. Still, we will start from simple things.

    In general, the idea of carry is very simple. This term just points to the difference in interest rates and profits that comes from this difference. We already know that different countries have different interest rates on their currencies at different times, depending on whether their economy contracting or expanding. This imbalance between rates on different currencies lets traders (mostly big financial institutions) extract this profit that comes from the rate difference.

    [​IMG]

    Pipruit: Yes, I remember that. Once we’ve said that rate difference could give profit/loss even if the exchange rate will not change at all. This difference appears since any transaction on the Forex market (if you avoid delivery and hold position open) forces you to do something like to borrow one currency and loan out the other. Say, if I go long in EUR/USD, (hold position for significant time and do not make a delivery or close it) then I borrow USD and loan EUR, because I have to deliver USD and the counterparty owes me to deliver EUR, hence I give them a loan in EUR, while they have given me loan in USD. Since the rates on EUR and USD are different – carry appears. We’ve spoken about it one…​
     
    #1 Administrator, Feb 8, 2012
    Lasted edited by : Oct 2, 2016
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