Did you know there’s a trading strategy that can earn you money… even if the price doesn’t move at all?
Sounds strange, right?
But it’s true—and it’s one of the favorite strategies used by some of the biggest and boldest fund managers in the financial world.
It’s called the Carry Trade.
💼 What Is a Carry Trade?
A carry trade is a strategy where you borrow or sell a currency with a low interest rate, and then use that money to buy a currency with a higher interest rate.
You pay interest on the borrowed currency (the "carry cost") and earn interest on the one you bought.
Your profit comes from the difference between those two interest rates—also known as the interest rate differential.
🧠 Carry Trade Simplified
Let’s say you borrow $10,000 from a bank at an interest rate of 1% per year.
Then, you invest that $10,000 in a bond that pays 5% per year.
So:
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You earn $500 from the bond (5% of $10,000)
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You pay $100 in interest on the loan (1% of $10,000)
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Your net profit is $400 per year (that’s a 4% return)
Now, that may not sound too exciting… until you bring leverage into the picture.
💣 Carry Trade + Leverage = Explosive Returns
In the forex world, carry trades get supercharged thanks to leverage.
Let’s break it down:
Imagine you borrow $1,000,000 at a 1% interest rate—but the bank only requires $10,000 of your own money as collateral (thanks to 100:1 leverage).
Then you deposit the $1,000,000 into an account earning 5% interest.
At the end of the year:
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You earn $50,000 in interest (5% of $1M)
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You pay $10,000 in borrowing costs (1% of $1M)
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Your net profit is $40,000
That’s a 400% return on your original $10,000!
🧐 But Wait—It’s Not Always Sunshine and Profits
In the next lessons, we’ll dive deeper into:
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How carry trades work in real forex trading
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When they’re profitable
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When they don’t work (and why)
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And what the heck is risk aversion (spoiler: it's a mood swing the market sometimes has)
Stick around—carry trades might just become one of your favorite strategies.