Carry trade strategies

A carry trade happens when you buy a high-yielding currency and sell a relatively lower-yielding currency. The strategy profits in two ways:

_ By being long the higher-yielding currency and short the lower-yielding currency, you can earn the interestrate differential between the two currencies, known as the carry. If you have the opposite position — long the low-yielder and short the high-yielder — the interest-rate differential is against you, and it is known as the cost of carry.

_ Spot prices appreciate in the direction of the interestrate differential. Currency pairs with significant interestrate differentials tend to move in favor of the higheryielding currency as traders who are long the high yielder are rewarded, increasing buying interest, and traders who are short the high yielder are penalized, reducing selling interest. So let me get this straight, you may be thinking: All I have to do is buy the higher-yielding currency/sell the lower-yielding currency, sit back, earn the carry, and watch the spot price move higher? What’s the catch? The catch is that downside spot price volatility can quickly swamp any gains from the carry trade’s interest-rate differential. The risk can be compounded by excessive market positioning in favor of the carry trade, meaning a carry trade has become so popular that everyone gets in on it.

Figure 3-1 illustrates the trending price gains of a carry trade, punctuated by sudden price setbacks. Carry trades usually work best in low-volatility environments, meaning when financial markets are relatively stable and investors are forced to chase yield. Keep in mind that carry trades need to have a significant interest-rate differential between the two currencies (typically more than 2 percent) to make them attractive. And carry trades are definitely a longterm strategy, because depending on when you get in, you may get caught in a downdraft that could take several days or weeks to unwind before the trade becomes profitable again.

ForexGen Scalping Enabled Account

Trade and scalp the market [ForexGen] has the pleasure to announce the availability of both Dealing Desk and No Dealing Desk Platforms. No Dealing option provide traders with direct access to the best bid/ask prices through multiple bank access. No re-quotes & No dealer confirmation is the main characteristic of the no dealing option made specifically for “scalpers” and active FX professionals. Absolute freedom to trade during news and economic events. The no dealing desk option allows traders to place entry orders inside the spread! Unlike competing FX firms, [ForexGen offers] traders all the advantage of a “no dealing desk” option.

Advantages of No Dealing Desk Option

* Trade the news without intervention or restrictions * Although spreads may vary in volatile market conditions, they are tried to be kept within the usually limits. * Place scalping orders without intervention or restrictions. * A client-friendly trading environment, No re-quotes. * Ability to place orders inside the spread * Competing rates from multiple banks * Spreads are variable and can move sharply * Ideal for active or professional FX traders

For more information about our current and future promotions, kindly visit this page often or contact one of our customers support agents at promotions@forexgen.com