Carry trade is a forex trading strategy where traders borrow money in a currency with low interest rates and invest in a currency with higher interest rates. The goal of the strategy is to earn the difference between the interest rates, known as the “carry.”
For example, a trader may borrow Japanese yen at a low interest rate and invest in Australian dollars at a higher interest rate. If the Australian dollar appreciates against the yen, the trader can earn a profit from both the interest rate differential and the currency appreciation.
Carry trades can be risky, as currency exchange rates are subject to fluctuations that can erode profits or even result in losses. Additionally, carry trades can be affected by changes in central bank policy and economic data releases that impact interest rates.
Overall, carry trades can be a profitable strategy for experienced traders who are able to manage risk and analyze market conditions effectively.