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Long-Term Foreign Exchange Carry Trading

Foreign Exchange Carry Trading

There are three different timeframes that you can use to trade on the foreign exchange.  These are short, medium and long-term.  There are many traders who look at long-term trading as the best way to make a profit on the foreign exchange.  If you are one of these traders then you should consider how you can increase the profits that you make with this trading.  Long-term trading offers you the unique opportunity of completing long-term carry trading in addition to your price action trading.

Price Action and Carry Trading

Two of the ways that you can trade on the foreign exchange is through price action and carry trading.  With price action trading you are going to be making a profit from the movements in the currency pair values.  With carry trading you are going to be making a profit from the difference in the interest rates of the different currencies.  It is very easy to combine these two trading strategies when you are looking at long-term trading.

To combine these two trading strategies you will need to complete a long-term trade with a currency pair that works with carry trading.  As you are going to be holding the currency pair for a number of days due to your price action strategy you can profit from the carry trade.

The Foreign Exchange Currency Pairs

It is very important that you carefully consider the currency pairs that you use with this long-term carry trading.  You should not use any currency pair because of the impact this will have on the carry trade.  The best currency pair to use will be the Australian dollar and Japanese yen pair.  This offers the greatest difference in interest rates and the greatest profits with the carry trade.

There are others currency pairs that you can consider.  When you consider the currency pairs you need to look at the difference in the interest rates.  If there is a small difference then the currency pair is not an ideal candidate.

Placing the Long-Term Trade

The first step in this trading is to open the long-term position.  There are a number of restrictions that you should consider when you open this position.  You should trade in a way that makes you a profit from the price action.  However, you should also be buying the high interest rate currency in the pair.  If you are not buying this currency then you are not going to make a profit from the carry trade.

To open the position you should analyse the market movements and find trade signals according to your strategy.  Once you have found the signals open the trade while ensuring that you are holding the high interest rate currency.  You should be able to do this quit easily as currency pairs offer two variations.  The one variation of the currency pair will have one of the currencies as the base while the other variation will have the other currency as the base.

Once you have the position open you should continue to trade as normal.  The carry trade profits that you are going to make are passive which means that you do not have to actively do anything.

 

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