With interest rates dictating the rate of return for holding shares assets denominated in the local currency Forex trader also pay special attention to interest rate differences when it comes to keeping their position open for a long time this because the interest rate difference is carried on when a Forex position is kept open overnight. This practice is known as carry trade when you are buying a currency that have a higher interest rates compared to the counter currency you can take advantage of positive carry in other words you again a small interest on your Forex position if you keep it open until the next trading day and your broker will add that amount to your profits. Conversely when you are buying a currency that has a lower interest rates compared to the counter currency you are crossing from negative carry if you keep the trade open for days you lost a small part of your forest position to the negative interest rate differential which gets applied to your profit on the next trading clay. For instance, if the The Reserve Bank of Australia offer 3.00 % interest while the US fed offers only 0.25 person going long Australian Dollar and US dollar code give you a 2.75% additional return based on your physician if you keep your trade open for their shorting Australian Dollar and US dollar gives you a two-point 75% loss on your profits if you hold on to your trade for hair overnight gains or losses are determined as a part of the annualized interest rate differential. You have probably guessed that much longer term positions have the potential of benefiting from pure live position carry even if you loss from the actual therefore if price does not move at all you can gain profits each day just by keeping the trade open for a really long time. On the other hand negative carry can wind up eating a chunk of your profits even if you make small ones on the actual Forex trade. Carry trades can therefore maximize the profits on long-term trade especially when race is on. This can be determined by using the market sentiment analysis technical discuss in the earlier section when higher builder are likely to rally, a trader can benefit from long position and from the the positive rate differential. Of course I was negatively when of risk is of. Not only do higher yielders sell off, but also holding on to a short position with these currencies code reduce your profit potential. thanks
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