In recent years the “carry trade” has been recognized as an alternative way to generate income. This ebook is a complete guide to help you create your own carry trading system and avoid the common pitfalls.
Step-by-step it covers everything you need to know:
- How to choose the right currencies
- How to work out income precisely
- Understanding fees in carry trades
- Explanation of terminology: Swaps, rollover and value dates
- Uncovered interest rate parity and what it means for carry trading
- How to compare brokers
- Dealing with risk-on risk-off
It explains with examples how interest rates influence financial markets and how a carry trade system can profit from them. It gives a step by step explanation of a basic carry trade and shows exactly where the income comes from and what the potential risks are.
From there it shows how to use reverse strategies, tactical carry trading and how to create a hedging system. It explains arbitrage, cash-and-carry and uncovered interest rate parity and why it is important.
Unhedged carry trade strategies usually suffer severe drawdown at times of risk reversal. The book explains how drawdown can be limited. Hedging and arbitrage allows the exchange rate risk to be mitigated or even eliminated altogether. This is done either using offsetting basis trades or using the futures market. It explains:
- How to identify and exploit carry trade arbitrage
- How to set up basis trades
- How to identify arbitrage between spot and futures
- The “cash and carry” strategy
- Creating “interest rate swaps” with futures
- Using options
The last part explains the yield curve and how to use it within your trading strategy. Specifically:
- What the yield curve really means
- Calculating changes in exchange rates
- Predicting trends
- The forward paradox
It’s specifically written for traders and avoids the use of technical jargon or abstract economics.