How to earn money with Forex…without doing trading

Did you know there is a method to make money with Forex even if there are no price differences between when you buy and when you sell? This method is called “carry trade”.

With the carry trade method you do not “trade” in the strict sense of the word trade. But you gain because you open and hold a position (for example, for one year) on a pair of currencies with different interest rates. The difference in interest rate between the currency that you purchase and the one you pay is your gain with the carry trade.

In order to better understand this article, you should have already read the free ebook on Forex that I wrote. If you have not already read it, you can download it from here.

How carry trade works

Carry trade works when you open a trade with Forex as if you had purchased a currency paying for it with another currency.

Having bought a currency, you are paid a daily interest and the interest reflects the exchange rate of that currency. Similarly you pay the interest rate of the currency that you use to buy. If the difference between the rate you receive and the rate that you pay is positive of course you have a gain.

It works because there are currencies that have a high interest rate (high cost of money) and currencies that have a low interest rate (low cost of money). The currency that you buy (base) must have a higher interest rate than the one you use to pay (quote).

AB Forex is the only course in Italy that teaches you how to invest in Forex and earn a lot of money! Even starting from zero!

Here’s how you can earn with carry trade

Imagine you have 10,000 and you invest it in a carry trade. Let’s say that the difference in rates is 5% per annum and let’s say that you invest your money with a leverage of

10: 1. So with 10,000 you manage 100,000.

After a year, how much have you earned? It depends.

If the currency pair of the carry trade kept the same value you gain 5% on the capital. Since you invested with leverage you gain 5% of 100,000.

Because you put in 10,000 you earned 50% in one year, without making any trades, but only thanks to the carry trade!

But this is the standard scenario. It can also happen that the value of the currency pair that you choose for the carry trade increased and therefore, in addition to the money you gained from the carry trade, you will also have the trade gain.
Great, right? And the risks?

AB Forex is the only course in Italy that teaches you how to invest in Forex and earn a lot of money! Even starting from zero!

The carry trade risk

It’s very simple. The risk is that the currency pair in which you have invested, drops in value during the period in which you want to keep the trade open.

And if you decide to leave it open without any protection (stop loss) at worst it will eat up all your capital, up until the margin (the broker closes the trade when it reaches the margin).

Obviously this is the worst case scenario. You can certainly act on a carry trade as you act on a normal trade by placing a stop loss and limit your losses.

A carry trade is not an automatic gain. It is a further possibility of making money on Forex. At least until the subprime crisis happened.

Carry trade issues after the subprime crisis

The crisis triggered by the subprime problem in late 2008 and 2009, knocked down the interest rates in the hope of reviving the economy. This of course was the kiss of death for carry trades.

The interest on the New Zealand dollar which before the crisis was at 9.5% and was the base currency queen of carry trades (the currency pair with the Yen). With the subprime crisis, they fell enormously, negating the possibility of carry trade to be sufficiently profitable.

The rule is simple: as long as economic conditions remain critical, the rates remain low, and carry trades are not profitable enough.

AB Forex is the only course in Italy that teaches you how to invest in Forex and earn a lot of money! Even starting from zero!

In times of financial crisis, carry trades are like a car which consumes too much gas in times of an oil crisis: it is therefore kept in the garage by investors waiting for better times.

Never mind, there are always directional trades. Because Forex is probably the best wealth creation method and one that is the least affected by a financial crisis. Indeed, a crisis of any kind.

Until the next appointment with your financial freedom,

Alfio Bardolla

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