Trade Interest Rate Difference

By selling a currency with a lower interest rate compared to a currency with a higher interest rate, you can profit from the higher price as well as the interest rate difference (also known as the carry trade).

It's like getting glazed cupcakes with sprinkles on top! It tells you! Just imagine how delicious it will be!

Currency crosses offer many pairs with high interest rate differences that are best suited for this type of trading.

Take, for example, a good bullish move for AUD/JPY. Taking a long position in this pair would have made a significant return.

Also, the difference in interest rates between AUD and JPY was large.

From 2002 to 2007, the Reserve Bank of Australia raised rates to 6.25% while the Bank of Japan kept it at 0%.

This means you have benefited from the long position on this trade and the difference in interest rates!

Now it will be an amazing cash cow!

Later in college (unless your brain explodes with all this forex knowledge by then) you will teach more about carry trading. We'll tell you which ones work and which ones don't.

We will even teach you risk aversion. But that's for a later lesson.