Some trading strategies are better suited for the major hedge fund players or the minor retail trading players in the foreign exchange market. There are major differences that exist among the spectrum of Forex trading participants that determines their optimal strategy. One commonality that exists between all traders, brokers and hedge funds is that of obtaining maximum profits and minimum losses. One strategy referred to as the carry trade Forex strategy is a trading anomaly which can be used by any player in the trading market.
Why is carry trade strategy so popular?
Unlike Forex scalping strategy, the carry trade strategy has been increasing in popularity among a variety of market participants ever since its initial inception. The key to successfully implementing the carry trade Forex strategy is to understand the very important role of interest rates when trading foreign currencies. Summarizing the basic steps of the carry trade Forex strategy is that the trader buys currencies with a high interest rate, then sells ones with a low interest rate. Interest rate differences can emerge overnight and can make for a huge profit if done with a proper strategy. The most important thing to remember when considering the carry trade Forex strategy is that it should be used in a fairly predictable economic market where there are not dramatic changes over night. If there is some sort of economic crisis surrounding the market, the best would be to wait until implementing carry trade Forex strategy.
How to implement the carry trade strategy?
Assuming there is a rather stable economic market, then the trader can proceed to implement the carry trade Forex strategy. First, it is the trader´s responsibility to choose a currency pair, usually involving the major currencies, that guarantee a high interest rate. Oftentimes, major currency pairs used with the carry trade Forex strategy includes the following: Australian Dollar/ Japanese Yen and British Sterling Pound/ Japanese Yen. These major currency pairs often guarantee high positive interest rates.
Once the currency pair is chosen it is recommended to stay away from the stop-loss Forex strategy, and rather pursue the carry trade Forex strategy. As long there is a positive interest rate change that occurs over night, then the trader will see the profits resulting from the carry trade Forex strategy. It is crucial that the trader keeps an eye out for any economic upset in order to avoid major losses from implementing this strategy.