Emerging markets watch: what are you seeing?
EM currencies carry the highest yields and the sharpest risks. This thread is for members watching MXN, ZAR, TRY, BRL, INR and the rest of the complex.
Post:
- the EM currency you follow and its story
- the carry-versus-risk trade-off you see
- the crisis pattern you're watching for
Background: the carry trade guide frames the EM trade.
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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