What Does Negative Carry Pair Mean?
What Does Negative Carry Pair Mean? The term ‘negative carry’ refers to a currency pair with a negative interest rate. Typically, this means that an investor borrows money in a higher-interest currency and invests the proceeds in a lower-interest currency. This results in a negative net cash flow on the day of the trade. In contrast, a traditional carry trade involves borrowing in a low-interest currency and investing in a high-interest currency, generating a positive net cash flow on day one.
Foreign exchange trading
The term ‘negative carry pair’ is used in foreign exchange trading. It refers to a situation where an investor buys a currency with a low interest rate while selling it for a higher interest rate. This is the opposite of a ‘positive carry pair’ trading strategy. For the most part, an investor will be able to profit from a negative carry pair if the cash inflow from one position is less than the outflow from the other.
A negative carry pair is a popular strategy in foreign exchange trading. It involves buying a low-interest-rate currency and selling it for a higher-interest-rate currency. While a negative carry pair involves short-selling a high-interest-rate currency, it enables investors to take advantage of the difference in interest rates and leverage to make a profit. As a result, negative carry pairs are relatively expensive to maintain.