Carry trade

transcript

Investment InsightsInvestment Insights

Carry Trade

StockStream LLP

All about investments. © StockStream LLP

Disclaimer

• Trading carries significant risk of losses and may not be suitable for all investors. Traders should assess these risks either themselves or in consultation with a financial advisor before investing.

• There is no guarantee that the trading techniques, methods and other information in this presentation will result in profits. The content in this presentation in only intended for educational and informational purposes and not intended as trading recommendation.

• The content of this presentation is subject to change without notice.

• Stockstream Financial Advisory Services LLP or mystockstream.com will not take any liability or accountability of losses arising from the use of information in this presentation in any manner.

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StockStream Education Model

Introduction

• Currency trading is done by buying or selling currency pairs.

• Buying EUR/USD means you are buying Euros and selling US dollars.

• Different central banks have different interest rates, e.g. ECB gives 1.25% and FED gives 0.25%.

• By holding EUR/USD longs you earn a difference the two central bank interest rates. In this case you make 1% interest.

• The interest income earned or paid for holding a position is called rollover.

• Carry trade is a long term position that earns a positive rollover.

Introduction

• Higher interest rates generally lead to higher currency value.

• Interest rate expectations also dictate currency prices.

• Interest rate expectation is the anticipated increase or lowering of interest rates by a central bank.

• Higher interest rate expectations generally lead to higher currency value.

Trading Strategy

• Identify currency pairs with the highest rollover rates.

• Look at the interest rate expectations for the identified currencies.

• If the interest rate expectations are also in favor of the higher interest rate then use technical analysis to enter trade.o Identify the market bias.o Enter close to support levels

• Hold position till interest rate expectations change or technical analysis indicates an exit.

Example

• High Yielders:o AUD: 4.75%o NZD: 2.50%

• Low Yielders:o JPY: 0.10%o CHF: 0.25%o USD: 0.25%

• Interest Rate Expectations:o AUD, USD: increasingo CHF, JPY, NZD : stable

• Trading Strategy: Look to go long AUD/JPY and AUD/CHF depending on market bias based on technical analysis.

Questions

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