Forex Carry Trade - Free Interest on Leveraged currency

The interest rates can have a major impact on how some currency pairs are traded. For some traders look at a long term business is the practice of collecting rollover effect.

Rollover is when the interest is made between the currency pairs every day and thought to be paid to you or from you. Different currencies have different interest rates and earn the spread between the currencies of interest where the forex carry trade comes into play

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Carry trades are transactions thatdone with specific currency pairs with the idea of ​​earning interest in mind. Each time the two currencies are exchanged, there is a fee to be paid. This tax is basically because there is a difference in interest rates between two currencies, and this difference is to follow, to compensate for the difference in the forex transaction.

If the dealer is buying a currency with higher interest rate, then they can earn credit that can sometimes be as much as 20%the total profit of a transaction. This is a carry trade, a long term business under way, at least one full day, but more generally, the interest earned results.

Here's how the interest due is indicated. Let the U.S. Dollar Japanese Yen (USD / JPY) pair as an example. Suppose that the U.S. interest rate is 5.5%, while the rate in Japan is only 5%. Since the currency pair USD / JPY subtract 5.5 to 0.5 = 5%. Given that there remains at 5%, this amountthe dealer until the USD / JPY is credited. This is the added value that comes with a carry trade success.

The basic idea is that if the trade in this currency pair, is "borrowed" the yen at 5% in U.S. dollars that are paying 5.5% on the purchase, then 5% is the difference remains . The interest is daily, counted, and while holding this position, you earn daily rollover interest.

Some have a forex currency pairsTendency to take a long recovery period, when interest rates change, because a large number of retailers is specifically for the opportunity to benefit from these couples and positive interest rates, try to offer them. This can be a very positive long-term trading strategy.

If you are thinking is a long term position with a pair of currencies, the interest rate may be an important aspect, because up to one quarter of the profits in the long-term forex trading can be carried bypositive interest credited to your account. Not a bad way to go, so as to benefit the interest of money leverage.

Forex Carry Trade - Free Interest on Leveraged currency

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Posted in: Currency,Interest,Leveraged