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Hello everyone, I am a new member of the great Dukascopy community and this will be my first of many articles. I feel like this is the perfect subject to start with because the explanation of a carry trade brings us back to the very basic fundamentals of forex trading. So here we go!
Definition of a carry trade:
A carry trade consists of borrowing money in a currency with low interest rates and investing the funds in another currency with higher interest rates.
This is a pretty straightforward definition, but let's use an example to put this information into context. If the interest rate of the European Central Bank is 0% while the US Federal Reserve is 1,75%, the interest rate spread would be 1,75% (1,75% - 0%). In this example, we would borrow Euro to invest in USD therefore the net yield of the carry trade would be a gain of 1.75% or 1,750$ a year for 1 lot traded.
How does this apply to trading?
Borrowing and investing in different countries would be way too complicated for an individual to do alone. This is why we do business with brokers. They can give us access to trade almost all the currencies in the world. As we know the FX market operates in pair, meaning that if you inv…
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Diana29 avatar
Diana29 29 Apr.

Nice job!

Sanju777 avatar
Sanju777 29 Apr.

good artilce

Sasha_spicy avatar

good one!

Maxim3 avatar
Maxim3 30 Apr.

useful article!

rajwinder avatar
rajwinder 30 Apr.

Well written, Good Luck

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The most important aspect of Forex trading is having a working strategy and one of the most widely used rule is of diversification of the trading portfolio. Diversification of the trading portfolio means getting exposure to various currency pairs so that the trading result is not influenced by any single currency pair. As an example, a trader may trade ten different currency pairs at a time with the maximum loss per pair allowed of 0.5% of the global portfolio value. However in implementing this diversification strategy it is important to know various aspects of the different pairs like the pip value, overnight rate and margin for these have a great impact on the chosen strategy. The Dukascopy website has great Forex calculators that can be used for this purpose. This article looks at these forex calculators and how they can aid the trader in implementing their trading and risk management strategies.
How to get to the Forex Calculators

The Forex calculators are found in the “market info” section of the Dukascopy website . On the drop down menu that appears when you point the cursor to this section, click on the “Forex calculator” section as shown in steps in …
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Vlad73 avatar
Vlad73 26 Dec.

good article

Nastasiia_ avatar
Nastasiia_ 27 Dec.

Well done!

md1fk1 avatar
md1fk1 27 Dec.

well done

kish avatar
kish 28 Dec.

хорошая статья

klintons avatar
klintons 19 Jan.

Gut Artikel

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What ever happened to the carry trade? Back in the middle of 2007 I was just a year into my trading "apprenticeship". I just had just blown my first account and was trying to find the perfect system that will make me a millionaire overnight. I knew a friend who was just starting out in trading, lets call him Bob. "Bob" got into forex trading by hearing about the "Carry Trade".What is the "Carry Trade" ?A "Carry Trade" is executed when you borrow a currency that has a low interest rate, like the Japanese Yen and at the same time you buy a currency that has a high interest rate. You make a profit of the interest rate differential between the two currencies, also called Carry or Rollover.The prime example for a so called "funding currency" for the past decade has been the Japanese Yen. The Bank of Japan has kept interest rates in the near zero range for close to 15 years now. See the chart below for this.As can be seen on the chart, Japan's interest rates stayed in the 0%-0.5% range all throughout the past decade. Even to this day Japan has one of the lowest interest rates of the world ranging at 0%-0.10%.Back in 2007 there were a lot of currencies with "high" interest rates. The more…
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Ivolux avatar
Ivolux 20 Dec.

Interesting read, guess we all know what happened next, huge crash all the way to 120.00

scramble avatar
scramble 24 Dec.

funny your avatar followed by the title of the article in the contest home page :)

scramble avatar
scramble 24 Dec.

and nice article of course!

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This article will describe this long term trading strategy, used mostly by institutional investors, highlighting rewards and risks in a simple way, to make it possible for you to use it as well. With carry trade you can make or lose money even if the price of a currency pair remains static for a long time. It will also help you understand the reasons behind some of the market's moves, especially during volatile and risk-off periods.____________________ ► What is carry trade? Even though it's possible to have carry trades in a variety of financial instruments and investments, the basic premise is the same. Positive carry trade occurs when someone borrows an asset with low interest rates to finance the investment in an asset with a higher return. For example, borrowing money at 2%, and then investing the funds in an asset that pays 5%. This is easily done in the Forex market, because currencies are traded in pairs, so a positive carry trade is obtained when a trader buys ("carries") a high interest rate currency (for example, AUD), and sells a low interest rate one, such as JPY. Negative carry trade, as expected, is the opposite. This situation happens when the yield of holding an…
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bmg avatar
bmg 30 Oct.

Good article

brazandeh avatar
brazandeh 16 Dec.

You really are a Special FX!.Thank you so much for the clarification

SpecialFX avatar
SpecialFX 17 Dec.

You are welcome brazandeh, I am glad you liked it! :)

brazandeh avatar
brazandeh 22 July

Is it rally possible to get pips by carry trade?If I understand it correctly, so as a position to be profitable , the value of positive carry trade must be higher than the spread of that instrument and at the same time the direction of that position must be in favor of the market.Am I right or did I miss something?

FXRabbit avatar
FXRabbit 14 Sep.

Thank you for writing this article and sharing it with us!

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Fore Rollover:Forex Rollover:Rollover is interest that is either debited or credited at 5pm EST to a traders account. The amount depends on the yield from the Central bank. As it stands the Central bank Base rates are:-Reserve Bank Of Australia  - 4.5%reserve bank Of New Zealand - 2.5%European Central bank - 1.25%Bank Of Canada - 1.0%Bank Of England - 0.5%Federal Reserve - 0.25%Bank Of Japan - 0.1%Swiss national Bank - 0.0%The Rollover that is credited or debited is worked out by the spread of the two currencies that you trade with. For example Is you were to LONG AUD/USD you would get +4.5% from Longing AUD but you would -0.25% from shorting USD, therefore you gain +4.25% from Longing AUD/USD.To put this in perspective If you were to LONG AUD/USD at 1.0000 with 100,000 units (1 standard Lot) You would receive 4.25% interest Per annum or $4250, therefore you would be credited $11.64 every day at 5pm just for having the position open.Next you would most likely traded with leverage. Lets say 25:1 meaning you put down $4,000 margin to trade with $100,000. Now that $4,250 is over 100% profit per annum just for having a position open. If AUD/USD stayed at 1.0000 for the whole year you w…
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AdrianWS avatar
AdrianWS 20 Dec.

Thanks everyone for your comments. Looking forward to next month now. Article contest is getting a lot more competetive and I like it.

FX_Swingtrader avatar

Sky trader is very knowledgable ad right very well done and great.

LinnuxFX avatar
LinnuxFX 23 Dec.

Merry Christmas, with a lot of GREEN PIPS...

masterfxtrader avatar

merry christmas to all those on dukascopy and anyelse reading +1

AdrianWS avatar
AdrianWS 31 Dec.

Happy new year everyone, have a good and prosperous 2012.

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