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Carry Trade Risk PDF Print E-mail

Now, we know that there isn't such a thing as a free lunch. Something that sounds too good to be true must surely have a potential downside. Indeed, the biggest risk in a carry trade strategy is the uncertainty of exchange rates.

When you go long on a currency pair like NZD/JPY as a carry trade, you expect and want the New Zealand dollar to appreciate in value versus the Japanese yen for however long you intend to hold your position for. If NZD/JPY goes up, you will stand to gain not just from the interest spread, but also from capital appreciation. The risk then is of the carry trade pair to decline more in percentage than what you would gain from the interest fees. 

Besides looking for currency pairs which offer a wide positive interest rate differential between the two currencies, you also need to assess the directional bias of the currency pair you are considering, and to determine the potential for the higher-yielding currency to appreciate against the low-yielding one.

In the next section, You will find  the School of Pipsology where you can learne basic analysis and money management techniques, and it may push you to open a demo account 

The trading psychology involves becoming an expert in a multitude of disciplines, including fundamental, technical analysis and sentiment analysis

Before you enter a single trade, read and study enough to know why a tool works, how it works and how well it has worked in many different situations. After you start trading your live account, continue reading and studying some more. The forex market is dynamic and continuously changing. 

 
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