Carry Trade Strategy

Carry trade. - trading on interest rate differentials. One of the most popular among traders speculative strategies on the Forex currency market. It is based on buying a high-yielding currency, whose country's interest rate is high, for a low-yielding currency. The payoff of this tactic is the following interest rate differential of the two countries.

More often than not carry trade strategy is used on the Australian dollar/Japanese yen (AUDJPY), New Zealand dollar/Japanese yen (NZDJPY) and British pound/Swiss franc (GBPCHF) pairs, recently popularized the US dollar as a low-yielding currency due to the sharp decline in the interest rate in the United States. Traders make such a choice due to the fact that these pairs, and similar ones, have a large difference in interest rates.

Thus, the use of carry trade strategies involves an initial assessment of the profitability of traded currencies.