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ForexC
Carry Trade
A strategy where a trader borrows in a low-interest-rate currency and invests in a high-interest-rate currency to profit from the interest rate differential. Carry trades are popular in forex markets and can generate steady returns during stable economic conditions. However, they carry significant risk during periods of market volatility, as sudden currency reversals can quickly erase accumulated interest gains.
Example
“The Japanese yen carry trade unwound dramatically when the Bank of Japan unexpectedly raised interest rates, causing a massive yen rally.”