Each trader has his personal approach to the situation on currency market and his own trading methods and trading system. Each one chooses the strategy that to his mind is the most effective. As a rule, the opinions of traders on that subject are different.

But today we will focus on the most popular strategy appreciated by traders all over the world.

Carry trade is the trading method based on the difference between low-yielding and high-yielding national currencies. The main principle of the strategy is to purchase a currency yielding a lower interest rate and sell it at higher interest rate. In other words, you open a position with a large swap point trying not to close it as long as possible in order to get a maximum profit with the help of swap points.

The bigger the difference between the interest rates of currencies in your pair is, the bigger is the size of swap points. Therefore, you should choose currencies with the biggest difference in interest rates. The most popular currency pairs are AUD/JPY, NZD/JPY, and GBP/CHF.

You can get the necessary information on exchange rates any time. The detailed information can be easily found on the websites of central banks and Forex-brokers.

As any other trading strategy, Carry trade has its own peculiarities. Firstly, in order to gain profit you should use the large initial deposit and keep a position open as long as possible. Secondly, the interest rates are subject to fluctuations. They can change sharply which is quite risky.

Thus, in order to use the strategy Carry trade successfully, it is crucial to follow the changes of exchange rates and focus on long-term trade. In this case patience is the key to successful trade.

Added by Andrey Misyuk,
InstaForex Clients’ relationship manager