Forex Carry Trade Strategy

July 4, 2016

It is simply impossible to successfully trade on Forex if you don’t have a certain set of rules to follow each time you turn on your computer and start looking at the various charts in front of you. With plenty of strategies to choose from, you shouldn’t have any problems choosing the one that will suit you the best.

Forex Carry Trade Strategy

Of course, it is important to know as much as you possibly can about a strategy you plan on using while trading on Forex and learn to use it properly. Not every strategy will be right for you and you need to see if you will be able to make the best of it. So let’s dive in and see if Forex carry trade strategy is the right fit.

Carry Trade Strategy: the Basics

Forex carry trade system has been around for decades but it became widely popular in the last couple of years or so. It made a triumphant return and quickly became one of the most used trading strategies in the market today. Its success is undeniable and it brings in the results. So what makes it so special?

When you trade using a carry trade strategy, your aim is to find a currency that is not so popular or often traded in the market, sell it, and then buy one of the major currencies for the amount of funds you earned in that previous sale. It might sound like you won’t have a large profit in this trade, but the point is to use leverage and that will surely bring in the funds to your account. Your aim should be to make money on the difference between those two currencies.

So, in order to use carry trade FX strategy the right way, you should keep a close eye on interest rate charts, see which currencies have highest as well as lowest rates, and pair them up together. This is the proper way to use this trading strategy and you have to always be well-informed because interest rates will go up and down over a period of time.

The easiest way to always be on top of everything is to visit websites that offer the latest interest rate charts or simply find a tool you will download to your personal computer and you will have the interest rates right there on your desktop.

 Use this article as your guide to understanding currency pairs! 

When Carry Trade Works and When It Doesn’t

Centrals banks are the key figures in the Forex carry trade strategy. They might be seen as the ringleaders and your personal success depends on their decisions and movements. It a central bank increases interest rates of a certain currency, everyone will be jumping on that bandwagon and the value will increase. What you need to do is plan in advance, enter the trade early and be there before everyone else.

On the other hand, if the value of a currency decreases, the investors will likely ignore it and look for better opportunities in the market. This makes carry trade strategy fail and you will very likely be on the losing end if you don’t exit the trade soon enough. That high leverage we have mentioned before can go against you and make you lose even more money.

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Is this strategy right for you?

You probably already know that carry trade Forex trading strategy requires you hold a long-position. This means that there will be no need for you to login every day, carefully watch the movement of certain trends, and make quick decisions. This explains why carry trade strategy is so popular among large investment companies and banks.

If you are exclusively a day trader, you might brush it off immediately. But this trading strategy can be beneficial to you as well. Long positions might not be as exciting or rewarding as short term positions, but the main goal of a carry trade strategy is to make profit while you hold that position. You will not be capable of seeing the results right away but they will be there if you stick to it.

Check out best Forex books for more strategies!

Forex Carry Trade Strategy: Conclusion

Best FX carry trade strategy is easy to understand but you need to be well-informed before you start using it. It is not recommended to someone who has absolutely no idea how the market works, but advanced beginners who already possess some knowledge of Forex trading business will make it work. Examining the interest rates and finding the best currency pair to trade is crucial (many traders who use this strategy go for JPY/USD pairing). Strategies that involve long positions might not be suitable for everyone but they will surely pay off if you are careful and patient.