This document discusses the carry trade investment strategy. The carry trade involves taking long positions in higher-yielding currencies and short positions in lower-yielding currencies to profit from interest rate differentials. It recommends identifying currencies with the highest interest rate spreads, assessing interest rate expectations, and using technical analysis to enter trades near support levels and hold positions until fundamentals change. The example suggests going long the higher-yielding AUD against the lower-yielding JPY and CHF based on their relative interest rates and rate outlooks.

1. Investment Insights
Investment Insights
Carry Trade
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2. Disclaimer
•
Trading carries significant risk of losses and may not be suitable for all
investors. Traders should assess these risks either themselves or in
consultation with a financial advisor before investing.
•
There is no guarantee that the trading techniques, methods and other
information in this presentation will result in profits. The content in this
presentation in only intended for educational and informational
purposes and not intended as trading recommendation.
•
The content of this presentation is subject to change without notice.
•
Stockstream Financial Advisory Services LLP or mystockstream.com
will not take any liability or accountability of losses arising from the use
of information in this presentation in any manner.
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4. Introduction
• Currency trading is done by buying or selling currency pairs.
• Buying EUR/USD means you are buying Euros and selling US
dollars.
• Different central banks have different interest rates, e.g. ECB
gives 1.25% and FED gives 0.25%.
• By holding EUR/USD longs you earn a difference the two central
bank interest rates. In this case you make 1% interest.
• The interest income earned or paid for holding a position is called
rollover.
• Carry trade is a long term position that earns a positive rollover.
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5. Introduction
• Higher interest rates generally lead to higher currency
value.
• Interest rate expectations also dictate currency prices.
• Interest rate expectation is the anticipated increase or
lowering of interest rates by a central bank.
• Higher interest rate expectations generally lead to higher
currency value.
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6. Trading Strategy
• Identify currency pairs with the highest rollover rates.
• Look at the interest rate expectations for the identified
currencies.
• If the interest rate expectations are also in favor of the
higher interest rate then use technical analysis to enter
trade.
o Identify the market bias.
o Enter close to support levels
• Hold position till interest rate expectations change or
technical analysis indicates an exit.
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7. Example
• High Yielders:
o AUD: 4.75%
o NZD: 2.50%
• Low Yielders:
o JPY: 0.10%
o CHF: 0.25%
o USD: 0.25%
• Interest Rate Expectations:
o AUD, USD: increasing
o CHF, JPY, NZD : stable
• Trading Strategy: Look to go long AUD/JPY and AUD/CHF
depending on market bias based on technical analysis.
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8. Questions
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