Carry trade calculators are obviously used by Forex traders who use carry trading strategies. Carry trading is one of the most long-term Forex trading strategies. It involves taking advantage of differentials of interest rates between two different currencies. So if you were to get into this kind of trading, you would buy into one currency that is high yielding, in terms of another currency that is low yielding. This way, you will essentially be buying low and selling high.
Some currency pairs are more popular than others in carry trading. One of the most popular currency pairs in carry trading, is AUD/JPY, because the Australian dollar has an interest rate that is high and the Japanese yen has an interest rate that is low. Because this type of trading is all about buying into high yielding currencies and selling off low yielding ones, the AUD/JPY currency pair is perfect.
If you were going to use a carry trading strategy, you would firstly open up one of these types of calculators. You would then input the following information into the calculator:
– The currency that your account works in (for example USD)
– The currency pair that you are looking to trade (for example AUD/JPY)
– The current price of that same currency pair (some tools will retrieve its current price automatically for you)
– The duration of the trade (for example 60 days)
– The number of units (the size of the trade)
– The position you would like to take (whether it be to buy or sell).
After you have entered all of the above information, you will be able to have the tool calculate the following information for you with a click of a button:
– The lend rate (the base currency’s interest rate)
– The borrow rate (the quote currency’s interest rate)
– The interest earned (the amount of profit or loss that you will be able to make)
– The value of the trade’s interest earned in pips (the pip value of the trade’s profit or loss).
Carry trading is very easy and great for beginner Forex traders, as it helps them to make much safer profits, because shorter-term trading strategies typically require much more Forex trading experience and they also tend to carry a lot more risk. A good example of a short-term trading strategy, would be scalping, which is very risky and relies on short-term Forex market price volatility. Scalping is definitely not recommended for Forex traders who are just starting out. In fact, all day trading strategies are generally not ideal for beginning traders because they all require more experience and they are all generally quite risky. They can of course all be effective, but longer-term trading strategies are generally much easier to use and they also tend to be a lot safer.
Carry trade calculators make carry trading strategies even easier to use. If using one of these types of trading strategies interests you and you are thinking about placing a longer-term order in the Forex market, you should definitely use one of these types of calculators. There are plenty of them on the internet and they are all pretty easy to find. There are many of these types of tools available for free, which is convenient and they are also extremely easy to use and implement.
Do bear in mind though that the values of the different currency pairs will change naturally, due to market forces. Although carry trading is a long-term trading strategy and you should ignore price volatility in the short run when carry trading, you should still try to aware of these short-term price fluctuations. You won’t necessarily earn the same amount of interest that your calculator says you will earn too – you could earn less or you could earn more. You will probably want to also consider using leverage in order to make more significant profits, but do be aware of the risks of using leverage before actually applying any to any of your trades. If you are looking to carry trade and apply leverage to your carry trades though, you might want to find a broker that can offer higher amounts of leverage; different brokers will be able to provide different amounts of leverage on demand, so you will probably want to find one that can allow you to control a lot more currency than you actually hold so that you can make more significant gains using one of these types of Forex trading strategies.
In conclusion, carry trade calculators are used in Forex trading, by those who use carry trading strategies. If these sorts of trading strategies interest you and you are considering using one of them, you will undoubtedly want to use one of these kinds of calculators. They are free, simple and easy to use, allowing you to calculate the potential profits and losses of different carry trades in advance before actually placing the trades themselves. It’s always good to be prepared, so if you are thinking of placing a long-term order and taking advantage of interest rate differentials, you should definitely consider using a carry trade calculator.