Forex Carry Trade Calculator

Carry Trade Formula:

\[ Profit = \frac{(Interest\ Rate\ Differential \times Position\ Size \times Days)}{365} \]

Estimated Profit:

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1. What is Forex Carry Trade?

A carry trade is a strategy in forex trading where an investor borrows money in a currency with a low interest rate and invests in a currency with a higher interest rate, profiting from the interest rate differential.

2. How Does the Calculator Work?

The calculator uses the carry trade formula:

\[ Profit = \frac{(Interest\ Rate\ Differential \times Position\ Size \times Days)}{365} \]

Where:

\( Interest\ Rate\ Differential \) — Difference in interest rates between two currencies (%)
\( Position\ Size \) — Size of the position in base currency units
\( Days \) — Number of days the position is held

Explanation: The formula calculates the profit earned from the interest rate differential over a specific period.

3. Importance of Carry Trade Calculation

Details: Understanding potential carry trade profits helps forex traders evaluate the profitability of holding positions overnight or for extended periods, considering interest rate differences.

4. Using the Calculator

Tips: Enter the interest rate differential (annual percentage difference between two currencies), position size in units, and number of days you plan to hold the position.

5. Frequently Asked Questions (FAQ)

Q1: What's a typical interest rate differential in carry trades?
A: It varies but often ranges between 2-5% for major currency pairs. Emerging market currencies may offer higher differentials.

Q2: Does this calculator account for exchange rate changes?
A: No, this calculates only the interest component. Actual profit/loss depends on exchange rate movements during the trade period.

Q3: What's a good position size for carry trades?
A: This depends on your risk tolerance and account size. Many traders risk no more than 1-2% of their capital on a single trade.

Q4: Are there risks to carry trades?
A: Yes, the main risk is currency depreciation which can wipe out interest gains. Carry trades perform poorly during risk-off market environments.

Q5: How often are interest payments made in forex?
A: Interest is calculated daily and typically paid or charged at the end of each trading day (rollover at 5pm EST).