Carry watch: where is the yield picking up?
The carry trade earns the rate difference while the exchange rate cooperates. This thread tracks where the yields are, where the risks are, and how the trade is behaving.
Post:
- the pairs with attractive carry right now
- the unwind risks you're watching
- how swap income compares with the volatility risk
Background: carry trade explained.
Background: The carry trade explained, and why it can unwind so quickly
Borrowing in a low-interest currency to hold a high-interest one can earn steady income, until the exchange rate turns. How carry works and where the risk hides.
What is a carry trade in forex?
Buying a higher-yielding currency against a lower-yielding one to earn the interest rate difference, usually received as a positive overnight swap.
Why do carry trades unwind suddenly?
They are often crowded. When markets turn fearful, many traders close the same positions at once, buying back the funding currency and pushing it sharply higher.
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