Carry Trade

A carry trade is an archaic method of trade recently resurrected by governments of other countries to avoid imposed tariffs. We’re not sure how they’ll figure out how to “carry” steel to your door, but we’re sure they’ll think of something.

Actually, a carry trade is a trading strategy used by savvy currency traders whose research of current and future interest rate policies afford them lucrative money making opportunities. Traders earn interest rate differential by borrowing currencies with low interest rates, and using the proceeds to buy different currencies with higher paying interest rates. Their hope is to also reap the benefit of a probable currency appreciation.

In an ideal carry trade, and after you’ve done your due diligence on the current interest rate environment (and used your crystal ball to predict the future interest rate environment), you look for currencies with opposing directions. Meaning, you are long a currency rate that is expanding against a currency rate that is stagnant or contracting.

Moral of the investment story: If you really want to take advantage of this strategy, understanding the dynamics of interest rate increases and decreases is essential, especially if you want to reap the rewards of a money making spread. And if you’ve got to have a new Chinese handbag, just order them from Amazon and they’ll carry it right to your door.