ZIRP<\/strong><\/a>.<\/p>\n\n\n\nWith the Reserve Bank of Australia touting one of the higher interest rates among the major currencies (4.50% in the chart example), many traders flocked to this pair (one of the factors creating a nice little uptrend in the pair).<\/p>\n\n\n\n
From the start of 2009 to early 2010, this pair moved from a price of 55.50 to 88.00.<\/p>\n\n\n\n
That\u2019s 3,250 pips!<\/p>\n\n\n\n
If you couple that with interest payments from the interest rate differential of the two currencies, this pair has been a nice long-term play for many investors and traders able to weather the volatile up and down movements of the currency market.<\/p>\n\n\n\n
Of course, economic and political factors are changing daily.<\/p>\n\n\n\n
Interest rates and interest rate differentials between currencies may change as well, bringing popular carry trades (such as the yen carry trade) out of favor with investors.<\/p>\n\n\n\n
Carry Trade Risk<\/h2>\n\n\n\n
Because you are a very smart trader, you already know what the first question you should ask before entering a trade is right?<\/p>\n\n\n\n
\u201cWhat is my risk?\u201d<\/strong><\/p>\n\n\n\nCorrect! Before entering a trade you must ALWAYS<\/strong> assess your max risk and whether or not it is acceptable according to your risk management rules.<\/p>\n\n\n\nIn the example at the start of the lesson with Joe the Newbie Forex Trader, his maximum risk would have been $9,000. His position would be automatically closed out once his losses hit $9,000.<\/p>\n\n\n\n
Eh?<\/p>\n\n\n\n
That doesn\u2019t sound very good, does it?<\/p>\n\n\n\n
Remember, this is the worst possible scenario and Joe is a newbie, so he hasn\u2019t fully appreciated the value of stop losses.<\/p>\n\n\n\n
When doing a carry trade, you can still limit your losses like a regular directional trade.<\/p>\n\n\n\n
For instance, if Joe decided that he wanted to limit his risk to $1,000, he could set a stop order to close his position at whatever the price level would be for that $1,000 loss.<\/p>\n\n\n\n
He would still keep any interest payments he received while holding onto the position.<\/p>\n","protected":false},"excerpt":{"rendered":"
Let\u2019s go over the criteria for a carry trade. It\u2019s pretty simple to find a suitable pair to do a carry trade. Look for two things: Find a high interest differential. Find a pair that has been stable or in an uptrend in favor of the higher-yielding currency. This gives you the ability to stay […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[826],"tags":[],"_links":{"self":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts\/9838"}],"collection":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/comments?post=9838"}],"version-history":[{"count":0,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts\/9838\/revisions"}],"wp:attachment":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/media?parent=9838"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/categories?post=9838"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/tags?post=9838"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
![\"Carry](\"https:\/\/bpcdn.co\/images\/2016\/05\/freshman-audjpy-weekly-carry-trade.png\" "\\"Carry")
<\/a><\/figure>\n\n\n\n