Glossary · Fundamentals & economics
Carry trade
Buying a high-interest currency against a low-interest one to earn the positive swap. It is vulnerable to sharp reversals when markets turn risk-off.
In practice
Buying a high-yielding currency against the Japanese yen can earn a positive swap each night. That works until a risk-off move sends the yen sharply higher.
Ignoring price risk for the sake of swap. A single bad week can erase months of interest.
Related terms
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Interest paid or earned for holding a position overnight. It…
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