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In trading and investment, ‘carry’ refers to the cost of maintaining a financial position over time. This cost is typically associated with interest rates. When an investor holds a position in an instrument with a higher interest rate than the one that they borrowed to purchase it, they incur a carrying cost. This cost can be positive or negative, depending on whether the investor is earning or paying interest on the position.
Carry can also refer to the profit or loss from a hedged position, in which an investor takes opposite positions (long and short) in two different financial instruments with the goal of generating profit from the difference in their interest rates or yields.
For example, an investor borrows money at a lower interest rate in a currency with a lower yield. They invest that money in a higher-yielding currency. They can then earn the difference between the interest rates, which is known as the carry. In forex trading, this strategy is called the carry trade.
The main benefit of the carry trade is the investor’s potential to earn a profit from the interest rate differential between two currencies. The carry trade can also provide diversification benefits in both short and long-term investments.
However, the carry trade can be risky. Changes in interest rates can lead to large market movements in the forex market, resulting significant losses for investors. Therefore, it is essential that investors closely monitor interest rate differentials and market conditions before opening a carry trade.
ADSS offers a range of global markets for traders, with opportunities in indices, commodities, forex, equities and more. We also feature tutorials, how-to guides, and weekly webinars to help you navigate the financial markets and find better trading opportunities. You can start trading and investing online by opening a live trading or demo trading account.
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