And so we got too close for the ending lesson on carry trades.
What criteria does the couple have to meet in order to be a perfect candidate for a carry trade? I am going to name two things: high interest differential and a stable ongoing uptrend. In this case the uptrend is a very crucial part of trading is it allows you to stay in a particular trade for as long as needed and catch a lot of pips.
After all, carry trades and the ability to earn off of interest rates differential were made for long trading. A short trading while is possible here, is quite pointless as the more time you wait, the more interest rates differential is going to work for you.
Of course while putting down a long trade for a perfect couple it is better not to forget about the political and economic climates in the countries carriers of the currencies – these can affect interest rates and both hurt and improve your trading.
But. In carry trades even though they seem pretty harmless and riskless, it important to remember that risk is always a possibility. So. Before getting into a carry trade, just like any other trade one has to ask themselves – what is the risk here for me and my money?
Well, to minimize the risks you are to put down stop losses IN ANY CASE.
Imagine that you have $10.000 in your account. Would you like to lose it all or just a part of it of you absolutely had to? I hope your answer is just a part of it – like $1.000 or something.
So, of course assessing your losses is an important part of any trade, but in carry trade especially.
Aaaand that is pretty much it for carry trades.