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Carry trade: Difference between revisions
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{{d|Carry trade|/ˈkæri treɪd/|n|}} | {{d|Carry trade|/ˈkæri treɪd/|n|}} | ||
A transaction where one takes advantage of the market’s ''present'' opinion about | A transaction where one takes advantage of the market’s ''present'' opinion about its own future — most commonly expressed through the prism of the [[futures]] market, where that opinion is that an asset’s price will rise at a rate greater than one can borrow the cash required to buy it. | ||
“[[Positive carry]]” describes the state of affairs when the expected return on an asset is greater than the cost of owning it — being the implied cost of financing it, as well as actual costs of [[Custody|holding]] it and ensuring — ''in''suring — you don’t lose it. This means you can do a carry trade: borrow money to buy the asset and arrange to sell it forward later, and pay down your loan. | “[[Positive carry]]” describes the state of affairs when the expected return on an asset is greater than the cost of owning it — being the implied cost of financing it, as well as actual costs of [[Custody|holding]] it and ensuring — ''in''suring — you don’t lose it. This means you can do a carry trade: borrow money to buy the asset and arrange to sell it forward later, and pay down your loan. | ||