Carry Trade Operation [Forex Trading]

Carry Trade Operation

Carry trade operation on Forex implies the simultaneous conclusion of two opposite trades with various settlement dates, i.e. a position closes already opened one, even though the other opens it in one time. Thus, carry trade is a mixture of two deals with a similar sum of money and various different fixed value dates manufactured in opposite directions.

Carry Trade Operation on forex

The primary reason for such strategy is an overnight trading. In carry trading the short (bought) currency is hypothetically put on deposit, even though funding (sold) currency is borrowed.


When the position’s expiry dates are certainly not specified beforehand, the money is deposited and credited overnight. The process only works if a broker supports swap trading. Swap crediting and withdrawal are derived from the difference between the deposit and credit rate. When the deposit rate is a bit more compared to the credit one, the swap (positive carry) is credited to a trading account. When the credit rate is higher than the deposit one, then swap (negative carry) is withdrawn from a trading account.

As an illustration, we are going to employ a concern rate to calculate the swap. Thus, the ECB’s monthly interest is 1%, in the united states it is actually 0.25%. We sell or buy 1 EUR/USD lot (1 InstaForex lot = 10,000 of a base currency, to wit EUR) at 1.2310. Annual swap will total ((1% – 0.25%) x 10,000 x 1.2310) / 100% = $92.325, or daily: $92.325 /365 = $0.25. Once we go long (buy position) on EUR/USD, then we borrow the dollars under 0.25% annual rate and deposit the euros at 1% annual interest. The deposit rate is greater than the credit rate, that’s why we will be credited $0.25 to a trading account.

When we go short (sell position) on EUR/USD, we borrow the euros at 1% annual deposit and interest the dollars at 0.25% annual interest rate. The lending rate of interest is a lot more as compared to deposit rate, thus $0.25 shall be withdrawn daily from a trading account.

The swap is tripled for a rollover from Wednesday to Thursday. It occurs due to settlement date which explains shifted to Friday. Once we hold an overnight position from Wednesday to Thursday, the settlement date ought to be not 1 but 3 i, days. e. Monday. Due to this Wednesday-Thursday swap is calculated threefold.

Carry trade strategy works effectively on interest rate differential with such currency pairs as NZDJPY, AUDJPY, as well as the others.