Forex Currency Trading

Currency Exchange – Forex Mamma

Identify Carry Trade Opportunities

One of the best ways to make money on the Forex market is with Forex carry trade. The concept of carry trade is pretty simple. Basically, with carry trade an investor trades a currency with a lower interest rate for one with a higher rate and makes money off the interest. With carry trade a trader can make money regardless of whether the value of the currency goes up.

Let’s say that a trader puts down $10,000 with a broker and borrows $100,000 with a fee of 1.5% interest per year. The trader then uses that $100,000 to purchase a currency that pays 4% interest per year. The trader pockets 2.5% interest each year on the shares, whether or not the value rises. This 2.5% is known as the interest rate differential, the difference between the two interest rates. If the value rises, the trader gets a double payout because of the interest plus the increase in currency value.

Carry trade can be a fantastic opportunity. However, it is important to keep in mind that if the currency you invest in goes under then you can still risk losing it all. For this reason, strong Forex strategies should still be used when determining which currency to invest in with carry trade.

Once you understand the basic principals of this kind of investment it’s easy to find a carry trade opportunity. All you have to do is find two currencies that have very high interest rate differentials. It is important to keep in mind that other factors need to be considered as well, such as the strength of the currency you are buying. After all, you want to ensure that you won’t purchase a currency that will decrease in value a great deal, resulting in a big loss.

You can identify carry trade opportunities on your own, through your own research and strategy. You can also seek advice from more experienced Forex traders and online brokers to help you identify good carry trade opportunities. Once you find an opportunity, carry trading can be a great way to make money on the Forex market.