Carry Trade Strategy for Forex CFDs
Carry trades profit from interest rate differentials. Learn how to build a carry trade portfolio with CFDs. Earn the rate differential and understand the.
What Is a Carry Trade?
A carry trade borrows (sells) a low-interest-rate currency to buy a high-interest-rate currency. The trader profits from the interest rate differential, paid daily as 'swap' or 'rollover' by the broker. In CFDs, this is reflected in overnight financing rates.
Classic Carry Pairs
- Long AUD/JPY: Australia (high) vs Japan (low) — the classic carry trade
- Long NZD/JPY: New Zealand (high) vs Japan (low)
- Long USD/TRY: US (moderate) vs Turkey (very high — but extreme risk)
- Long GBP/CHF: UK (moderate) vs Switzerland (low)
Risk and Reward
Carry trades generate steady daily income but carry enormous directional risk. A 5% yield over a year can be wiped out by a single 5% adverse move. The 2008 crash saw AUD/JPY drop 30% in weeks, wiping out years of carry profits.
Practical CFD Carry Strategy
(1) Choose 2-3 carry pairs for diversification. (2) Use small position sizes — carry trades need to survive large adverse moves. (3) Trade in the direction of the trend — long carry pairs in risk-on environments. (4) Monitor central bank calendars — rate changes can make or break the trade. (5) Use wide stops or no stops with strict account-level drawdown limits.
Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70-80% of retail investor accounts lose money when trading CFDs. Backtesting does not guarantee future results. Always consider whether you can afford the potential loss of your capital.