Just google it. You'll uncover a whole stack of articles & various snippets relating to the carry.
What is the yen carry trade? - Money Week
Currency Carry Trade
Carry trade & global shake- Global Markets-Markets-The Economic Times
What is the yen carry trade? - Money Week
Currency Carry Trade
Carry trade & global shake- Global Markets-Markets-The Economic Times
That would be very useful, thanks for sharing the links..
In so-called carry trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the borrowing and lending rate.
The most liquid form of fund in practice is the money! Thus carry trade normally refers to currency carry trade.
The Yen has the lowest interest rate among the major currencies, which gives the highest interest rate differential in a currency pair, thus it is the most favorable candidate of carry trade.
To do carry trade : Simply long ( buy ) a currency pair, currency A / currency B, in which currency A has a higher interest rate than currency B; and with the expectation that the price of the currency pair increases or stays unchanged. So we earn the daily positive swap ( daily interest gain ), plus the gain in currency price, if any.
Learn the carry trade strategy done by Antonio Sousa at DailyFX. Just search ' carry trade ' at the site. NB. I do not mean to promote DailyFX.
Hope this info helps.
The most liquid form of fund in practice is the money! Thus carry trade normally refers to currency carry trade.
The Yen has the lowest interest rate among the major currencies, which gives the highest interest rate differential in a currency pair, thus it is the most favorable candidate of carry trade.
To do carry trade : Simply long ( buy ) a currency pair, currency A / currency B, in which currency A has a higher interest rate than currency B; and with the expectation that the price of the currency pair increases or stays unchanged. So we earn the daily positive swap ( daily interest gain ), plus the gain in currency price, if any.
Learn the carry trade strategy done by Antonio Sousa at DailyFX. Just search ' carry trade ' at the site. NB. I do not mean to promote DailyFX.
Hope this info helps.
yeah, thank you.. that really helps..
thank you for explanation and for the example.. at least it gives me a slightest idea on how carry trade means..
So as what you said that the Yen has the lowest interest rate among the major currencies, does it mean that it is the one commonly used for carry trade..
thank you for explanation and for the example.. at least it gives me a slightest idea on how carry trade means..
So as what you said that the Yen has the lowest interest rate among the major currencies, does it mean that it is the one commonly used for carry trade..
Yeah. Currency carry trade is normally referred to the Yen carry trade.
USDJPY, GBPJPY, AUDJPY and NZDJPY are the currency pairs / crosses that are widely used in the carry trade. You can see the huge interest rate difference within the currency pairs.
In this respect, GBPUSD, AUDUSD and NZDUSD are influenced by the activity of the carry trade.
Example, if you long USDJPY and the price remains unchanged overnight, you earn the daily interest, which is the main profit of the carry trade. A rise in price adds on to the profit. The ( main ) risk is price drop erases the profit, as simple as that.
USDJPY, GBPJPY, AUDJPY and NZDJPY are the currency pairs / crosses that are widely used in the carry trade. You can see the huge interest rate difference within the currency pairs.
In this respect, GBPUSD, AUDUSD and NZDUSD are influenced by the activity of the carry trade.
Example, if you long USDJPY and the price remains unchanged overnight, you earn the daily interest, which is the main profit of the carry trade. A rise in price adds on to the profit. The ( main ) risk is price drop erases the profit, as simple as that.
Rhody Trader
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Actually, no it's not. The CHF (Swiss Franc) is also used quite a bit in carry trades. It's rates aren't quite as low as for the JPY, but it's still lower than basically all other majors.
Swiss Franc is next to Yen as the favorite currency for carry trade. If one day the Swiss Franc has the lower interest rate than the Yen, it may replace the Yen as the most favorite choice for carry trade.
By concept, any currency ( preferably a major currency ) that has a very low interest rate can be a good candidate for carry trade.
By concept, any currency ( preferably a major currency ) that has a very low interest rate can be a good candidate for carry trade.
The wholesale community has also used the CZK for this lately (especially in an e.m. context), and these days banks I speak to are even starting to refer to the USD as a funding ccy
GJ
Aha, a wake-up call to the Japanese housewives :cheesy:
Oh i see! i think i agree with you, any currency that has a very low interest rate can be a candidate for carry trade..
Thanks for your reply guys and for sharing your thoughts about this!
More descriptions on carry trade, directly digested from various sources : Dailyfx, Bloomberg, Reuters & AP news.
Carry trades is the most dominant strategy in the $2 trillion a day currency market -- that involve borrowing in a currency with low interest rates to buy assets in others with high yields.
In so-called carry trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the borrowing and lending rate.
In carry trades, investors borrow funds in countries with lower lending rates and use the cash to buy debt in nations that offer higher returns.
Carry trades are strategies where investors typically sell the low-yielding yen to buy high-yielding currencies, and the trades generally reverse when risk aversion rises, bolstering the Japanese currency.
Carry trades involve borrowing currencies from countries with low interest rates, such as Japan and Switzerland, and investing the funds in higher-yielding assets elsewhere, such as the euro.
Yen is a favourite source of cheap funding for the carry trades based on interest rate differentials. Japan has the lowest interest rates in the developed world.
Carry trades are considered risky because currency fluctuations can erase the profit earned on the spread ( difference ) between the two rates of interest.
Carry-trade beneficiaries are usually the euro and currencies of countries with high interest rates, such as the New Zealand kiwi.
The high-yielding Australian and New Zealand units are top carry targets.
The yen-carry trade is an investment strategy that involves selling off the low-yielding yen in favor of higher-yielding assets.
Yen-carry trade involves selling off the low-yielding Japanese currency in favor of currencies in countries with higher interest rates. The unwinding of the yen-carry trade sends the yen higher.
Both the yen and Swiss franc gain when investors shed risk because the low-yielding currencies are often used to finance purchases of higher-yield and higher-risk assets.
For carry trades to thrive, central banks need to be raising interest rates, volatility needs to be low, traders need to be optimistic and risk appetite needs to be strong.
Carry trades live and die by 3 things: volatility, risk appetite and the direction of monetary policy.
The behaviour of carry trades over the last five years can be explained by the rally in commodity prices. So, it will probably take more than just higher-risk premiums to shake investors out of their positions. If the resources boom ends, however, the resultant unwinding of carry trades could be genuinely scary.
If the US stock market extends its gains, so will carry trades but if it begins to top out, watch out for another wave of carry liquidation.
If the Dow to continues to sell-off, we will see further weakness in carry trades.
Notice that we do carry trade if we carry overnight our long position on a currency pair that gives positive daily interest.
Happy carry-trading
Carry trades is the most dominant strategy in the $2 trillion a day currency market -- that involve borrowing in a currency with low interest rates to buy assets in others with high yields.
In so-called carry trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the borrowing and lending rate.
In carry trades, investors borrow funds in countries with lower lending rates and use the cash to buy debt in nations that offer higher returns.
Carry trades are strategies where investors typically sell the low-yielding yen to buy high-yielding currencies, and the trades generally reverse when risk aversion rises, bolstering the Japanese currency.
Carry trades involve borrowing currencies from countries with low interest rates, such as Japan and Switzerland, and investing the funds in higher-yielding assets elsewhere, such as the euro.
Yen is a favourite source of cheap funding for the carry trades based on interest rate differentials. Japan has the lowest interest rates in the developed world.
Carry trades are considered risky because currency fluctuations can erase the profit earned on the spread ( difference ) between the two rates of interest.
Carry-trade beneficiaries are usually the euro and currencies of countries with high interest rates, such as the New Zealand kiwi.
The high-yielding Australian and New Zealand units are top carry targets.
The yen-carry trade is an investment strategy that involves selling off the low-yielding yen in favor of higher-yielding assets.
Yen-carry trade involves selling off the low-yielding Japanese currency in favor of currencies in countries with higher interest rates. The unwinding of the yen-carry trade sends the yen higher.
Both the yen and Swiss franc gain when investors shed risk because the low-yielding currencies are often used to finance purchases of higher-yield and higher-risk assets.
For carry trades to thrive, central banks need to be raising interest rates, volatility needs to be low, traders need to be optimistic and risk appetite needs to be strong.
Carry trades live and die by 3 things: volatility, risk appetite and the direction of monetary policy.
The behaviour of carry trades over the last five years can be explained by the rally in commodity prices. So, it will probably take more than just higher-risk premiums to shake investors out of their positions. If the resources boom ends, however, the resultant unwinding of carry trades could be genuinely scary.
If the US stock market extends its gains, so will carry trades but if it begins to top out, watch out for another wave of carry liquidation.
If the Dow to continues to sell-off, we will see further weakness in carry trades.
Notice that we do carry trade if we carry overnight our long position on a currency pair that gives positive daily interest.
Happy carry-trading
