What Is a Carry Trade, and How Did a Small Rate Hike in Japan Just Trigger a Global Sell-Off? The Motley Fool
Therefore, carry interest should be viewed as “icing on the cake” rather than just an easy “no-brainer” strategy. The best time to get into a carry trade is when central banks are raising interest rates, or thinking about raising them. This is the preferred way of trading carry for investment banks and hedge funds but the strategy may be a bit tricky for individuals because trading a basket requires greater capital. The key with a basket is to dynamically change the portfolio allocations based on the interest rate curve and the monetary policies of the central banks. Central Bank Risk If you make an interest-positive trade on a currency pair that pays high interest, and the exchange rate stays the same or moves in your favor, you are a big…