The term Carry Trade is used in the world of investments, so if you dedicate yourself to it or have thought of doing it, it would be interesting if you knew what it means.
Carry trade is a strategy that is used at the time of Buy foreign exchange, usually for investments. This strategy tries to buy currencies at a certain price and sell another at the same time. In this way, while we are selling one currency, we are financing ourselves to be able to invest and buy money in a different currency.
This strategy also wants us to see that one of the currencies is appreciating (normally, the one that is bought: in which it is going to invest), while the one of the financing will be sold. It is a strategy widely used by investors of different sectors and profiles, although it is normally used by those who practice in Forex .
The main objective of this strategy is to be able to obtain profitability thanks to the difference between the interest rates of both currencies, which normally varies depending on the leverage used. Since the profit that is expected to be obtained is due to the difference between the interest rates of the currencies, the profit can be obtained even if the pips in the currency do not vary (measures the difference between the entry and exit price of the operation ).
This strategy implies that, in the short term, we are giving credit to the Government (supporting banks, in turn); while in the long term, credit could be a private sector dish, with a negative impact on the economic recovery.