Carry means investment. So investment where.. how...why and benefit? Let us carry trade in the Forex market. You enter into the Forex why? Because you want to profit big or small depending your trading isn't it? Yes. So if you want a large amount of profit then carry trading is right for you. But some risks have has to. And in the Forex you probably learn about this risk.
Carry trading is a trading currencies when sells currency which is low interest rate and make fund then buy a high interest rate currency. So by benefiting difference interest rate with the two currencies. Generally carry trades on the daily basis pay method means if you carry trading and your difference interest rate add/give to you by your broker daily basic. Huh...is the right?
Yes. You have gained market movement knowledge very sharply if you want to carry trading. Now attention the following example:
You find suppose AUD interest rate as 6% and USD rate at 2% then different is (6-2)=4%.The economy is good of AUD.And AUD is probably bullish today/this week/this month more than bearish.So you guess that AUD must be upward.Then you buy AUD and sell USD.If AUD is continue bullish and you hold on your position then after one day later you will be get some interest by your broker at 4% and Plus your profit of buy trading is off course still at your balancing point.So carry trading has huge profit by the end of day/week/month/year/s .In the 1990's carry trading heavily cause with jpy/usd because bank of Japan declared low interest rate or about 0%, carry trading interest given is relatively with leverage that you used on the broker.
Again suppose you enter as carry trading then interest different is 4% and you leverage is 10:1 in this case you got 45% interest by your broker.
The most disadvantage is carry trading the currency pair quote is unstable. So if the trade is against on your favor then you have paid interest from your balance this is cause highly loses of your capital.
So be careful! Cut you lose and gain profit use fundamental, technical, sentimental analysis for this.
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You are always welcome and thanks a lot.