I went through the school of pips lesson on carry trades and was wondering about using higher-yield currencies like cny, brl, krw, or even TRY. my question why brl and krw are more popular as choices even though all of them are restricted currencies and require NDFs for offshores. Also, how do you end up putting these restricted currencies in a carry trade? As an NDF is USD-denominated, would you not be earning the “interest” on the USD instead?
another question is, what low yield currency out of the more popular ones (USD, EUR, CHF, and JPY) would be the better choice for a carry trade, and with what justifications?
finally, do you guys think the carry trade is dead?
my questions aren’t necessarily retail-based; i’m just a forex noob recently finished with most of the school and feeling like the more i learn, the more i don’t know. i would really appreciate any light this community could shed on my questions. Thanks in advance!
In today’s race to devalue, you can wake up to some real surprises.
And most of the ones that pay best, are the ones in the most overvalued territory. Like EU/AU short. Spooky trade now that Moody’s has warned on a ratings lowering possibility for Australia.
It can be done, but you have to be careful. And with the more exotic instruments you mentioned, you need a broker that first allows you to trade them, and second, has liquidity in them.
Hi, thanks for your reply.
Does the EUR not have a little two much volatility over a two year period? Would JPY not also be a solid choice? If China slumps, it seems like AUD would be affected more than EUR, but wouldn’t it affect JPY and AUD rather equally?
A few years ago, this seemed like a good idea but given current situation and devaluation in process, very dangerous and not really advisable unless you have some way of getting the news ahead of other financial organizations, traders etc.
But as an option, no it is not dead but this is one area where only the top traders really participate for all the reasons listed above…
If I can jump in on this thread with a couple questions, it would be appreciated, and the answers may be helpful to chauvinist and others besides myself with getting more info on carry trading. What about INR/JPY? Unless I am missing something huge, it seems like an excellent candidate for carry. There is always a risk that you can lose equity, but it seems that risk is much lower with a currency that is already in the tank like the rupee. And if your risk management is sensible (giving yourself wide berth for the currency to go lower and not margin out) even regular BOJ intervention seems manageable. Realistically, it can’t go past zero! Also, with everything that is going on, devaluation, etc, isn’t any kind of forex trading more risky in this environment? Thanks for any input!