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The carry trade is back in vogue with hedge funds and large institutional traders.
First of all, what is the "carry trade?" It is a very simple trade. Traders buy a currency, such as the yen, in which interest rates are near zero and buy a currency in which rates are higher, and they pocket the difference.
The carry trade works best in tranquil times. Last year when markets were in turmoil, the volatility in the currency markets made it too risky to make this play. Now, however, the markets have calmed down and the carry trade is coming back.
For example, the Australian currency is one where the trade worked well. The Australian dollar is up 29% this year against the dollar.
Many people refer to the carry trade as the "free ride" play because the risk involved is relatively low.
The carry trade is used by big players who can move billions at the click of the mouse. The currency markets are used because they are highly liquid with billions of dollars in trades done each day.
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Reader Comments (Page 1 of 1)
10-07-2009 @ 8:09PM
tussnelda Glockenspiel said...
the $$$ dollar could lose its status of reserve currency of the world. Reason: the $3 trillion + US deficit spending, and the anti-work or anti-employment policy of the current admin. which only rewards the "People" with hand-outs, bailouts, and other Government nonproductive social, welfare programs. The welfare class benefit receivers, and the wasteful bureaucracy threatens not only US jobs, but is viewed negatively globally: by Europe, China, Communist countries who now view the USA as a competitor to their Communistic regime and copy cats programs. Only welfare people with huge birthrates are given free healthcare, HUD housing, free education, free food hand-outs, free shelters, free, free, gratis...Females who work, and use birthcontrol are punished, and humiliated by WISE LATINAs.
10-07-2009 @ 9:10PM
tussnelda Glockenspiel said...
We, the taxpayers and contributers to the standard of living and the american way in the USA, must change the 14th admentment to the US Constitution to read only children born to both parents who are US citizens are also granted the benefits of US citizenship. No more ancor baby scams and other illegallities from foreigners. These changes need to be made , please.