Hello fellow traders,
I have kept on hearing about how Carry Trading can provide lucrative returns if taken
on with a long-term mindset.
What time range would I be looking at?
What resources do you guys recommend that I use in order to be sure that I understand
all aspects of this strategy before putting in any cash?
What currency pairs (I know that the more ‘exotic’ are used) are recommended?
Best of luck to everyone – all your contributions are appreciated. 
Hi Riyadh,
Welcome to the forum
For carry trading, you want to look at longer time frame charts: daily, weekly, even monthly. It takes time for the rollover interest to accumulate, so you want to plan on being in the trade for at least a few months, if not more. That means your stops will be much wider than for other trading strategies: several hundred, if not thousands of pips. Because of this, you also want to use much less leverage.
Leverage of 10:1 would be on the more aggressive side, and some carry traders use only 2:1 or 3:1 leverage. That means every dollar in your account would only be used to control $2 or $3 in trades. Suppose you started with $10,000 in your account. On 3:1 leverage, you would control 30k in the market.
You should set up a free demo account to practice carry trading strategies to make sure you understand how the numbers work. Below are links to a couple of posts I made about currency pairs that are candidates for carry trading.
[ul]
[li]Exotic Currencies Reviving the Carry Trade
[/li][li][*]Carry Trade Opportunities in a Low Yield World
[/li][/ul]
Good trading!
Jason
This is more of a long term strategy based on fundamentals where the interest rate of one country is high and rising and the other country is low. A good example would be AUD/JPY. Over the last few years this has been very fruitful for carry traders ie taking a bullish stance. Seeing that you could be holding a trade for months if not years, it’s really geared for fund managers with large funds.
I have looked at the posts and the article and now have an UNDERSTANDING of what the carry trade
is but would like more insight into how I can get started right now.
For example, advice on the currency pairs which I should audit and the criteria for
the trade – amount of money, period of time (how long is the trend going to last) and
when I should review the trade.
Hopefully I can receive a more specific response.
I have looked at the posts and the article and now have an UNDERSTANDING of what the carry trade
is but would like more insight into how I can get started right now.
For example, advice on the currency pairs which I should audit and the criteria for
the trade – amount of money, period of time (how long is the trend going to last) and
when I should review the trade.
Hopefully I can receive a more specific response.
You could look at usdmxn. Mexican peso gives very good interest rate while usd is very low. If i remember well mxn gives about 4.3% while usd only 0.75%. If you buy mxn you are going to habe about 3.6% profit.
Thanks a lot medisoft – I’ll definitely investigate it further.
In the mean time, any more feedback will be appreciated.
Any opinions on the USDMXN pair?
Anymore responses?
Hi Riyadh,
I also like the idea of the carry trade though I’m not sure if its as valid an idea nowadays as it has been in the past. I recently read the following on Daily FX:
[I]Currently, most forex rolls are low and some are even negative, why?
In the last two years, central banks around the world took a number of measures to increase liquidity and stabilize financial markets. Among the actions taken by central bankers was a significant reduction in overnight lending rates and major injections of capital into the banking system. Eventually, after restoring some confidence on the financial system, central bankers succeeded in bringing down interbank rates. In other words, it became cheaper for banks to lend money between themselves. However, it also meant that the interest paid or earned for holding a currency position overnight would be significantly lower. In this situation, it may happen that both rolls for buying and selling currencies are negative because banks and other foreign exchange market players charge a small spread on interest paid or earned.[/I]
When I looked at the USD/MXN pair on FXCM’s platform it had a positive rollover of 0.69 I assume if you had a standard lot of 100k that would mean you’d earn $6.9 a day in interest. So that’s $2518.5 for the year or 2.5%. Depending on your leverage that could or could not be a good ROI. For example, if you had 25k and leveraged it at 4:1 the interest would represent a 10% ROI. Not bad, but when you consider the fact that you have to hold the position for a year and during that year the pair will move hundreds if not thousands of pips the interest becomes vaguely irrelevant. What you are doing is trend trading.
As a side note I tried to look for carry trade pairs that had minimal volatility or ranged really well. The EUR/DKK is one such currency. It ranges between 7.4250 and 7.4750. It has a positive rollover of 0.05 on FXCM which represents 50c a day on a standard lot. What I wanted to do is jack up the leverage on my account so that I could earn large amounts of interest with minimal risk (I’m such a newbie). The problem with the EUR/DKK is even if I leveraged 10k to 100:1 I’d still only be making $1825 a year.
Anyway good luck with the carry trade,
-M
Hi Everyone,
USD/MXN is definitely one to watch for potential carry trade opportunities. Two other pairs that I’m paying attention to are USD/NOK and NOK/JPY. Like MXN, the NOK is an oil play. USD/NOK pays $2.00 rollover for a 100k short position but requires only a quarter of the margin needed for a USD/MXN position. NOK/JPY pays 40 cents for a 100k long position but when you take into account that 100k NOK is actually 80% less money than 100k USD, you realize that it’s actually a high amount of rollover relative to the size of the trade. Also, by shorting the JPY you can also make a play on the weak yen policy of the current Japanese administration.
Jason
Sometimes there are opportunities to earn extra rollover interest in a short period of time due to holidays. When banks are closed for a holiday, no rollover interest can be applied for currencies on that day. That means the rollover interest has to be account for on another day when the banks are open. I made a post about this today.
I often thought whether its possible to cheat by opening one account with a normal swap account and another with a swap free account and just play the swaps with no risk.
It is great idea! Profit from swaps with full hedge on positions! There is no way to lose with this strat!
This looks VERY interesting. I am an investor and trader but have always had difficulty in making constant returns being a trader. As an investor (stocks) it is easy, 20%-30% return annually and now I have started reading on Forex with the interest rates and carry over investing.
Looking at the AUD/JPY over the past 10 years this seems like a guaranteed strategy to make money with great returns, interest + pips. But I can see you need a fair amount of capital to do so.
My only concern with any currency pair is the stability. AUD/JPY is pretty stable but can it maintain that going forward? That is probably unknown. Looking at the USD/ZAR it seems to be in a constant growth always going Long but currently it is 9.88 where it was once 3.00. This results in an almost bottomless pit.
Higher interest currencies with higher volatility = more risk. Unlike stocks where ultimately the bottom is 0, with Forex its a bit more tricky. The only way I can see to manage this is to use a bit of hedging to sustain the losses.
I am still going to research this further, give it a try and see how it goes. Thanks for the info