Is the Carry Trade Making a Comeback?

Risk appetite makes a cautious return to the FX market

The carry trade may be making a comeback in currency trading on the FX market. Risk appetite is making a tentative appearance in forex trading right now, thanks to continued positive performances on the global equity markets.

There is a certain measure of confidence right now amongst investors. With active economic stimulus measures being taken in a number of countries, the thought is that the global economy should pick up soon, and that has forex traders taking positions that could lead to increased earnings — along with the increased risk.

One of those strategies that is making a comeback is the carry trade. It is one of the riskiest moves, but also extremely popular (or it was, before the financial crisis). In the carry trade, a low yielding currency is borrowed to fund the purchase of a higher yielding currency. Money is made in the interest rate differential. Right now, the carry trade is slowly making a comeback as forex traders test the waters.