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Forex Trading Strategy: Spreads, the Basics of Long-Term Forex Trading

2022-03-10

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　　Interest rates are the most and almost the only factor to be considered in long-term foreign exchange transactions.Whether a currency pair rises or falls can basically be determined by the interest rate difference and interest rate difference expectations of the two currencies.Regardless of whether they are engaged in margin trading or real trading,the party who holds high interest rates for a long time can not only obtain relative interest margin returns(overnight positive interest in margin trading),but also often gain a lot of money in exchange rates.

Forex Trading Strategy: Spreads, the Basics of Long-Term Forex Trading

　　For example,AUD/USD in 2004-07,2009-11,EUR in 2014-15,and RMB/KRW in the past year all meet this feature.

　　Of course,some people will ask questions:First,what should I do if the exchange rate of a currency with a dominant interest rate has a sharp correction in the exchange rate?Second,some currencies,such as the ruble,depreciated sharply when the interest rate was raised.How to explain it?Third,some currencies have very low interest rates,but the exchange rate does not depreciate,what should I do?

　　The first one,not much explanation.Carry trading is a long-term low-risk strategy and cannot be operated in a short-term trading manner.Even for margin trading,there should be plenty of room for money management.It is not suitable to put on gambling,and it is not recommended to take such a risk in short-term trading.

　　Second,you can't accept the truth in trading.Carry trading is a general rule,and it must not be able to withstand sudden and major events.For example,the background of Russia's interest rate hike is to be sanctioned,and this factor has far exceeded the interest rate advantage.The same goes for Brexit,the US-China trade war,etc.

　　Third,with any trading strategy,the timing of entry is important.For example,RMB/KRW and RMB/NTD,the interest rate spread is wide enough,and the income is good if you choose the right time to enter.

　　To sum up,several conditions that carry trades need to meet include:

　　1.A sufficiently wide spread;

　　2.Clear exchange rate expectations;

　　3.No other major events interfere;

　　4.The right time to enter

　　5.Prudent money management

　　Then,you can fully enjoy the benefits of the spread.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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Forex Trading Strategy: Spreads, the Basics of Long-Term Forex Trading

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