eToro – Forex Trading Forum

[Tropezienne]

I mentioned carry trading in some of my articles about the trading personalities of currency pairs – but what is it? I have been studying the technique and have learned a little – at it's simplest level there are two things that must be understood about this technique :

1.It consists of buying a currency with a high rate of interest against a currency with a low rate of interest.
2.The Rollover (ou Swap) – is crucial in order to be a successful carry trader. All positions which are open at the end of the trading day must be 'rolled over' to the following day. It is the diffrence between the two rates of interest – one high, one low – which determines the level of your gains (or losses).

For example :

Take a pair like GBP/JPY and let's say that the interest rate for the GBP is 5.00% and that of the JPY est 0.50%. In the evening (I won't quote times – these will vary with the currency pair being carry-traded and your location) the rollover takes effect (for some reason this is best on a Wednesday – I read that somewhere, but I'm not sure why).

The rollover determines the remuneration. For the example quoted above your broker will pay 5-0.5 if you have a BUY position and you will pay 0.5-5 if you have a SELL position.