Forex Trading Terms: Carry Trade

by Trader Rich

What is the carry trade?One of the forex trading terms that has been seen in the news about the currency market a lot has been "carry trade." This is because, right now, things are looking volatile for this popular trade.

Carry trade on the FX market

The carry trade is a very popular — albeit risky — strategy in use by currency traders. In this trade, a currency with a low interest rate (such as the Japanese yen, Swiss franc and even the U.S. dollar now) is used to finance the purchase of a currency with a higher interest rate (such as the Australian dollar or euro).

Money is made on the differences in interest rate when the position is exited. Recently, though, with all the turmoil, the carry trade has been waning in popularity. Now, though, with the new Chinese stimulus package, there are some looking forward to the carry trade again.