The carry trade is a currency investing strategy that takes advantage of the difference in interest rates between currencies. The mechanics of the carry trade are quite simple. A trader sells one currency with a low interest rate in order to buy a currency with a high interest rate, collecting the difference between the two. In forex trading, this interest is collected (or paid) daily, so the addition of leverage can make it quite profitable in the right market conditions.
The carry trade is a different approach to forex trading than trying to anticipate shifts in the relative values of currencies. In a carry trade, you are hoping the currency you bought (are long in) will stay flat or increase in value against the currency you sold (shorted). As long as it is flat or appreciating, you can watch the interest flow in. The longer the trade is open, the more the position will earn in interest. If the trade goes south and your long position loses value, it can quickly erase any gains from the carry trade. In a steady market, and using a stop-loss, the carry trade offers another way for traders to profit from forex.
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