What is a carry trade?

Do you know that there is a trading system that can profit even when prices remain stable for a considerable period of time?

This type of trading system does exist, and it is used by many large institutional currency managers as one of the most popular trading profit channels.

It is called 'carry trading'.

“I’m tired of carrying this!”

Carry trading consists of two parts: borrowing or selling a financial instrument at a low interest rate, and then using the financial instrument to purchase a financial instrument with a higher interest rate.

While you pay low interest rates for the financial instruments you borrow or sell, you are receiving higher interest rate returns on the financial instruments you purchase. Therefore, your profit comes from the interest rate difference between two financial instruments.

for instanceYou borrow from the bank10,000USD, the bank's loan interest rate is1%Every year.

After you borrowed it10,000After $, you purchase10,000US dollar bonds with an annual yield of5%。

What is your profit margin?

Does anyone answer?

Yes, that's it4%Every year. The difference in interest rates between bank loans and bond yields.

Now, you are likely thinking, 'This is not as exciting as capturing the profits generated by market volatility.'

However, when you use carry tradesforeign exchangeIn the market, due toForeign exchange transactionsThe high leverage and daily interest rate payment regulations make it exciting to see your account funds increase every day.

You should know that in the20Double leverage3%In the case of interest rate spread, your annual yield is60%。

Examples of financing arbitrage transactions:

Assuming you use1%Interest rate borrowing100Ten thousand US dollars.

Banks will not only borrow from anyone100Ten thousand US dollars. It requires your cash guarantee:1Ten thousand US dollars.

As long as you repay the money, you will bring it back.

Your loan has been approved, so your backpack is full of cash.

Then you turn around and cross the street to another bank100Deposit ten thousand US dollars into an annual payment5%A savings account for.

A year has passed since leveraged arbitrage trading. What is your profit margin?

You obtained it from the bond5Interest of ten thousand US dollars(100Ten thousand US dollars to05dollar)。

You paid1Interest of ten thousand US dollars(100USD 10000* 0.01dollar)。

What is your net profit4Ten thousand US dollars.

Only a small amount1Ten thousand dollars, you make a profit4USD 10000!

This is a400%Returns!

In this section, we will discuss how to carry out arbitrage trading, when to work, and when not to work.

We will also address risk avoidance issues(WTHWhat is it??)

Don't worry, as we said, we will discuss more in the future.

In the next lesson, we will discuss how carry trading works, when it works, and when it doesn't.