The Carry Trade
19 August 2009 @ 05:35 pm EDT
Carry Trading can be a way for a Forex investor to reap terrific profits on their investment. A carry trade is when a currency with a low interest rate is sold to purchase a currency that pays a high interest rate. The difference in the interest rate between the two currencies is called the interest rate differential. An example of a carry trade currency pair is NZDJPY. For a credit in Japan you need only to pay an interest rate of 0.1 %. On the capital market you will get for your money 5 % when you invest your money in NZD. We have a rate differential of 4.9 %. This might be not that much, but when we trade with a leverage of 1:100 than we would have 490 % a year.
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