Carry trade

anyone please explain me about carry trading… i heard tat we can earn huge amount of money by carry trading…

If you attend and finish the school at babypips.com you would be familiar with the lesson talking about this:

"A carry trade involves borrowing or selling a financial instrument with a low interest rate, then using it to purchase a financial instrument with a higher interest rate. While you are paying the low interest rate on the financial instrument you borrowed/sold, you are collecting higher interest on the financial instrument you purchased. Thus your profit is the money you collect from the interest rate differential. For example:

Let’s say you go to a bank and borrow $10,000. Their lending fee is 1% of the $10,000 every year. With that borrowed money, you turn around and purchase a $10,000 bond that pays 5% a year.

What’s your profit?

Anyone?

You got it! It’s 4% a year! The difference between interest rates! "

The best part is not only about the percentage you earn, but also the leverage you use to earn those interest.
If you have $100,000 and you put in the bank for 1 year at 5% interest you would earn $5000 1 year.
But if you carry trade and trade with 10:1 leverage putting in the bank $1,000,000 instead of $100,000, you earn $50,000 instead of only $5000.
But beware of using leverage too much because whatever brings tremendous profits also could bring tremendous loss. Happy trading!

I found this for “interest calculations”:

OANDA FXTrade - FXMath

Its from oanda as you can see, seems pretty useful if you actually did carry trading. Does anyone else use this? I’m wondering if its a good tool, or is there better that i’m not aware of?? thanks! :smiley:

Hi there,

Carry trade if applied to forex is essentially a speculative strategy according to which one sells a certain currency at a relatively low interest rate, and uses the funds to purchase a different currency that generates a higher interest rate yield.

A trader profits from the difference between the interest rates. And to your question regarding the amount of money one can earn from this venture, well it largelty depends on the amount of leverage the investor chooses to use.

Hope it helped