A Profitable Forex Carry Trading Strategy Revealed

By: Tom Van Geert

Basically, the carry trade involves going long a high-yielding currency against a low-yielding and is a popular strategy among long term forex traders because they can earn interest on a daily basis. Carry traders love the yen crosses due to the very low JPY interest rate, for example, the GBP/JPY or EUR/JPY cross currency pairs. Carry trades are typically held for several weeks, month, or even years.

How much can you earn?

Daily rollover interest debit/credit Formula

Number of lots (Units) x (base currency interest rate - quote currency interest rate) / 365 days per year x current base currency rate = daily rollover interest debit/credit

GBP/JPY Carry Trade Example


Because UK has 5.75% rate, and Japan has 0.50% rate, this cross is very attractive for carry traders looking for buy opportunities only since they want to earn daily interest on the open trading position. Preferred timeframe's to make trading decisions are daily and weekly charts because they are looking to keep the trade for a longer time period. It really makes no sense to study a 5 min chart to take a carry trade.

Carry Trade Strategy

  • Identify a pair like GPB/JPY with a high interest differential
  • Apply technical analysis and create a rule-based trading strategy using longer term timeframe's only
  • Only long the currency bearing the higher interest rate: in the case of the GBP/JPY, long trades
  • Keep an eye on the interest rate differential because it can vary over time



A very simple strategy is the moving average cross over, we only go long when the fast EMA crosses the slow SMA from below (up trend) but we do not take trades when the fast EMA crosses the slow SMA from above (down trend) because the carry trade strategy would focus only on interest-positive trades: in the case of the GBP/JPY, long trades.

Currently*, when you are long GBP/JPY, most forex brokers will pay out over $25 a day per 100,000 units in interest which is paid on a daily basis. If for example, you keep the trade for 200 days, this could bring an amazing $5000 interest credited to your account not including the pips you lose or gain.

GBP/JPY: 248.08
GBP
Borrow Interest: 5.6%
JPY Lend Interest: 0.8%

Hope you can profit from this strategy.

Foreign Exchange
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 

» More on Foreign Exchange
 



Share this article :
Click to see more related articles