The Carry Trade & Why It Crashes
Borrow a low-yield currency, hold a high-yield one, and pocket the interest difference — a strategy that pays for years and then unravels in days.
The carry trade is the oldest and most famous strategy in foreign exchange, and understanding it explains a surprising amount of how currencies behave. The idea is simple: borrow a currency that pays a low interest rate, use the money to hold a currency that pays a high one, and collect the difference. The catch is also simple, and it is the whole point of this lesson — carry pays a little, steadily, for a long time, and then loses a lot, suddenly. Knowing why that happens is what separates an informed FX trader from someone about to be surprised.
What "carry" actually means
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