Currency Carry Trade

The Currency Carry Trade is one of the most popular trades in the foreign exchange market. In this type of trade you would borrow money in a foreign country with lower interest rates than your home country, and invest the funds in your own domestic market, usually in fixed-income securities. This is risky however because of the uncertainty of exchange rates. If your domestic currency falls in value relative to the currency you borrowed, you may risk losing your money. For the most part these types of transactions are done with quite a bit of leverage. Any small movement in exchange rates could result in huge losses for you unless you hedged in the right direction.