The strategy of the "carry trade"

Forex traders for years have successfully used one of the most popular strategies that was online, "carry trade". However, the current state of the economy no longer speaks in favor of this strategy.

carry trade - is a strategy of trading currencies, when a trader intended to benefit not only from the increase or decrease rate of any currency pair, but also from the differential in interest rates this pair. Using this strategy, the trader gets the currency with the highest interest rate and simultaneously sell the currency to its lowest rate.

For example:

1. Trader buys the New Zealand dollar (earns 7%)

2. At the same time, the trader sells Japanese yen (paying 0.25%)

3. If the currency pair remains at the same level throughout the year, the trader earns 6.75% (interest rate differential). If leverage is 10:1, the trader earned $ 6,750 NZD.

But all good things come to an end, and carry trade - is no exception. Since most of the national economy is currently in danger, the government massively cut interest rates. So carry traders were forced to rethink their strategies (profit decreased from 8 to 6%).