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Chapter 26, Part II. Should We Rely on Carry Solely? Page 6

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 26, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Pipruit: Wow, cool. Ok, looks like I understand of foundation of carry stuff:

    1. Forex carry, in fact, is a byproduct of long-term position;

    2. Carry itself can’t save your long-term position, if you were wrong on the perspective of some economy that you’ve invested in by purchasing its currency, say AUD;

    3. To make carry a valuable add-on we need low risk aversion among world investment society on the world economy – major world economies should turn to growth cycle stage. Under these conditions carry gradually increases the pace;

    4. If the world's economy feels good, then you must be sure that particular economy also feels good. Sometimes, they could feel different. For example, compare the US economy and Japan's economy. The US has passed through many cycles, while Japan stands in long stagnation;

    5. When risk aversion is high, and typically this happens during strong recessions – investors start to search for safe-havens to save their money. This leads to closing of carry positions. In this case, even if AUD/USD shows an attractive rate difference, investors will continue to buy USD and decreasing of AUD/USD highly overruns the positive carry.


    Commander in Pips: Yes, you’ve said it correctly. This easily could be compared with a human being. When you’re starving (crisis, high risk aversion), you can’t think about anything else than just to eat (safe money). But compare that to when you’re full – you have good mood, and ready to have fun and make a party. The same is with investors – when the economy feels good and all things are growing, investors risk appetite also increases and they want some piquant and exotic return – they dive into carry and start to invest to emerging countries and developed countries with higher interest rates, i.e. with positive carry.

    Pipruit: Nice comparison, thanks. In other words, if perspectives of the economy are good, and they will appear to be so – carry will add more return. If not –carry will not help you.​
     
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