Lesson 34: Trade Interest Rate Differentials

By selling currencies whose country has a lower interest rate against currencies whose country has a higher interest rate, you can profit from the interest rate differential (known as a carry trade) as well as price appreciation.

That’s like being able to get a frosted cupcake with sprinkles on top! That talks to you! Imagine how delicious that would taste!

Lesson 34: Trade Interest Rate Differentials

Currency crosses offer many pairs with high interest rate differentials that are prime for these types of trades.

Lesson 34: Trade Interest Rate Differentials

For example, take a look at the nice uptrend on AUD/JPY. If you had a long position on this pair, you would’ve made a hefty profit.

On top of that, the interest rate differential between AUD and JPY was huge.

From 2002 to 2007, the Reserve Bank of Australia had raised rates to 6.25% while the BOJ kept their rates at 0%.

That means you made profits off your long position AND the interest rate differential on that trade!

Now that’d be an awesome cash cow right there!

Lesson 34: Trade Interest Rate Differentials

Later on in college (if your brain hasn’t exploded with all this forex knowledge by then), we’ll teach you more about carry trade .

We’ll teach you which ones will work and which ones won’t.

We’ll even teach you about a lil’ something called risk aversion. But that’s for a later lesson.

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