I know what you are thinking. Are those the trades of some girl named Carry? Well, no. these are a whole other type of trades that we can implement in order to be profitable.
Carry trades are the best explained through this example.
Imagine that you want to get a loan from the bank. You go and borrow $1.000.000. But in order to get it you have to pay $10.000 worth of collateral. You pay it, take your borrowed money, go across the street and deposit this million to the account that has 7 percent return a year.
You come back in a year and you have made $70 thousand. With collateral being 10 thousand you have earned $60 thousand and experienced 60% annual return!
How the hell did that happen? Well you have successfully executed a carry trade but in real life!
That’s right. That is exactly what carry trade means – you are basically earning of off different interest rated selling the assets with low interest rates and buying back the assets with high interest rates. Thus you are getting a lot of profits off the difference in interest rates.
So – carry trades are trades where profits are gained with the help of different interest rates.
We are going to explore them closely in the next several lessons.