How to trade currencies: the carry trade and beyond
July 19, 2010
Discretionary versus systematic-based approaches
It is generally recognised that the most straightforward way of exploiting proven inefficiencies in the global currency market is through the carry trade. In the simplest terms, this strategy aims to capitalise on the so-called forward rate bias (FRB), which is the tendency of the total return generated by higher interest rate currencies to outperform the returns paid by lower-rate currencies.
A simple example of a carry trade in yen, which has been the most...
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