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Yen Trading

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The Japanese Yen carry trade is one of the more popular Forex trading techniques, making Yen trading a prominent point of discussion among many fx currency trading experts. The potential of lucrative profits in carry trading is dependent on a strategy of selling a currency that is experiencing a low interest rate, and subsequently buying a currency that has a higher interest rate. Your profit is the equivalent of the difference between the two interest rates.

For several years Japan had a 0% central bank interest rate, specifically between the years of 2000 and 2006. Now, at the time of writing this article, the interest rate is up to 0.1% (Feb 19, 2010). However, in relation to other countries, this number is significantly low, making Yen trading for any currency trader an attractive option for carry traders.

As of February 2010, interest rates for other major currencies were still higher than the Yen. Australia is at 3.75%, United Kingdom at 0.5%, United States at 0.25%, and the Swiss National Bank at 0.25%.

Other countries have even higher interest rates. Egypt rings in at 8.25%, with their last update in September of 2009. South Africa is at 7.0%, and hasn’t been updated in August 2009. China is at 5.31%, India at 4.75%, and New Zealand at 2.5%.

Let’s take the New Zealand Dollar, or NZD, as our example currency. Say we want to make a carry trade with Yen trading, in other words: we would be selling our Japanese Yens and buying New Zealand Dollars. With that, we take New Zealand’s 2.5% rate and subtract Japan’s 0.1% interest rate to get a 2.4% difference between the two currencies.

In this example, if we were to buy $20,000 of NZD for the equivalent amount in Yens, that trade would earn us $480 over the course of a year. However, there are many factors you must consider before you go off thinking this will be easy money for you. One of which is the fees that an online fx trading broker is going to charge you based on your trades.

One great Forex trading tip I can give you is that any online broker you find is going to charge you fees, or take a certain percentage out of your trades as their “cut.” Read your agreement with whatever broker you choose to go with, like the one you’ll find at FXClub or IBFX, and make sure you aren’t getting charged any fees that your mind doesn’t agree with. There are many great brokers out there, so it’s not worth getting gamed by a broker you didn’t read enough about.

No matter what forex trading program or strategy appeals to you the most, carry Yen trading should always be in the back of your mind. Even if you do not use this technique immediately, carrying in Forex is still important concept to understand. Remember, you always want to be up to date in all new trading information and techniques. So, in effect, you should never ignore any given strategy.

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