Carry Trade

[jollyrgrs]

Hi, just some questions on carry trade.

I understand the logic behind carry trade, but I need to know how it actually works. Say, how does a hedge fund do carrying step by step?

As I understand it, Hedge Fund ABC has $X in its account. Assuming ABC invests all equity in carry trade, it first converts $X into Yen, say JPY100X (exchange rate being 1-100), then it borrows JPY10,000X on 100 times leverage. Then ABC sells all JPY10,000X to maybe GBP and invests in higher-yield assets.

So essentially there are three trades involved: 1. sell japan interest rates; 2. shorts JPY to other currencies; 3. long assets denominated in other currencies. Or is it also: short japan bonds/british bonds spread, and short JPY/GBP?

cheers for help

 

[jiggly]

How Does the Carry Trade Work for Forex? | College: Carry Trade | Learn Forex Trading

 

[DaxDestroyer]

Hi, just some questions on carry trade.

I understand the logic behind carry trade, but I need to know how it actually works. Say, how does a hedge fund do carrying step by step?

As I understand it, Hedge Fund ABC has $X in its account. Assuming ABC invests all equity in carry trade, it first converts $X into Yen, say JPY100X (exchange rate being 1-100), then it borrows JPY10,000X on 100 times leverage. Then ABC sells all JPY10,000X to maybe GBP and invests in higher-yield assets.

So essentially there are three trades involved: 1. sell japan interest rates; 2. shorts JPY to other currencies; 3. long assets denominated in other currencies. Or is it also: short japan bonds/british bonds spread, and short JPY/GBP?

cheers for help

Usually it goes like this

1. Unsatisfied with return
2. Seeing bigger returns
3. Investing to get them
4. Realising that one loses money
5. Unwinding trade
6. Blame external reasons for failure
7. save heaven buying

 

[gonnamakeit]

this is interesting..i have been reading about this recently

have also read the babypips chapter on this

im still not sure how one would use the carry trade. I use igindex and am not sure how this would work..would i just go long gbp/jpy - and how is that any different from any other tarding where one goes long or short

how is the interest differential gain accumulated also ????

Please help..confused