Carry trades - how much profit can they carry?

Currency Anna 26 March 2019 Hits: 290

There is a very short but very useful remark that I have to make right now. There is a possibility to profit off trading currency couple where interest rates of the participants are VERY different. Trades like that are called interest rate differentials or carry trades and some traders manage to earn forex fortune by trading them.

Trading off of interest rate differences is a better strategy for those who prefer longing as interest rates are always changing and there is no way to say whether interest rates in the long run are going to play for or against you.

Imagine a currency couple. For example, AUD and JPY. There was a time when interest rates difference between then was as big as 6.25 percent with interest rates in Japan being 0 percent. Imagine – the AUD/JPY trading was constantly on the rise and those who were longing it were constantly adding winnings.

Although here it is important to be very careful as no two couples and no two interest rates dynamic are alike. You need to understand that in order to be really successful trading difference rates.

And that is my short remark.