It’s been a tough few months for currency traders. Choppy markets haven’t produced any major trends. This got me thinking into ways to make money when the market is not moving. This is the first installment of my multi-part series on trading for income.
What is Trading for Income?
Trading for income covers a broad range of ways to make money regardless of market conditions. Trend following excels during high volatility. Mean reversion strategies do better during ranges. Trading for income is supposed to bridge that gap and offer some ‘’stable’’ income. Please keep in mind that there is no free lunch in the markets. Just like with the other two strategies, trading for income has some serious drawbacks as well. More on this later in this article.
The Carry Trade
The carry trade was a very popular method of trading before the 2008 Financial Crisis. A "Carry Trade" is executed when you borrow a currency that has a low (or now negative) interest rate, like the Japanese Yen or the Euro. At the same time you buy a currency that has a relatively high interest rate. You make a profit of the interest rate differential between the two currencies, also called Carry or Rollover.
In a …
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