Steven George R711_ Thompson#76

Ver traducción

What is carry trade strategy in forex and how does it work?

The carry trade exploits interest rate differentials between currencies. Traders borrow in low-yield currencies (like JPY) and invest in high-yield currencies (like AUD). Profits come from the rate differential plus potential appreciation of the high-yield currency. Institutions and hedge funds often scale carry trades across baskets for diversification. Benefits: steady income during stable conditions. Risks: sharp losses during crises when risk aversion causes high-yield currencies to crash. Retail traders can replicate carry trades on a smaller scale, but must monitor swaps and risk sentiment. Carry trades explain why global risk appetite heavily influences forex—when fear rises, carry unwinds fast.