What’s a curry-trade?
Kerry-trade is a popular trading strategy, which experienced investors are actively practicing on both currency and stock trading floors. It is based on a simple principle – to benefit from the difference in interest rates of national currencies. That is, the investor in this case acquires the currency, which rates are high, and sells the currency with low rates, making a profit from the difference in the size of interest rates – swaps.
It should be noted that carri-trade cannot be called a universal strategy – it works only in the absence of global economic problems in the world. If there is a clear crisis dynamics, it is not necessary to apply this tactic of exchange game. Stop-loss is not recommended here yet. And, of course, in order to trade on the interest rate difference, it is necessary to first clarify with the broker whether this item is included in the list of interest accrual. Want to know more about this? Choose your broker on our website and get the most favorable terms of cooperation right now.
The most striking example of swap trading is any currency pair that includes a Japanese yen traded at zero interest rate. In this case, any other currency, be it the dollar, euro or Swiss franc, the rates on which can reach 5% per annum, will allow the trader to earn the same 5% of profit. Of course, the difference in interest rates can be even smaller. As, for example, in the EUR/USD pair, where the swap is equal to 0.75% per annum. In any case, the amount of profit will be calculated from the ratio of rates for buying and selling currencies in the pair.
How does trading with a corridor-trade strategy look like?
1) First of all, you need to choose the currency pair with the most favorable swap – most often these are the so-called “auxiliary” pairs of NZD/JPY, AUD/JPY, GBP/JPY.
2) Next, it is necessary to determine the direction of positive dynamics of the swap and make a deal in this direction.
3) Setting up a trading position – better with minimal risk and a small “step”.
4) Wait for the expiration of the transaction or close the position upon reaching a certain level of profit.
What makes curry-trade strategy so attractive? Possibility to use leverage to increase the income from the transaction. Thus, even a shoulder in the ratio of 10:1 will increase the profitability from 4 – 5 to 50% per annum. Even in the long run, the risk of losing funds on deposit will be minimal. And even if the dynamics of currency rates will be negative sooner or later will work margin call, and the deal will be closed automatically. And the account will retain the amount of the margin deposit. If the price remains at the same level, the investor will get 5% profit from swaps and the leverage will increase the profit volume up to 50% (relative to the trader’s own funds). And, of course, earning on the difference in interest rates, you can also successfully make a profit from the positive dynamics of exchange rates, increasing the probability of replenishment of the deposit twice.