How much can you earn with a positive swap? Carry trade strategy
When trading on Forex, there is a concept called swap. Brokers charge a fee for carrying open positions on the exchange over to the next day.
This commission is quite specific; its essence lies in the difference in the interest rates of the currencies in the currency pair; for this reason, the swap value can be either positive or negative.
This aspect was described in more detail on our website in an article located at https://time-forex.com/praktika/svop-fx
If there is a positive swap option, then there are those who want to make money on it; at one time, an entire strategy was even developed called Carry trade.
Many beginning traders are attracted by the simplicity of this trading option, as all you need to do to earn money is select a currency pair and open a trade following the trend. But is the profit potential from a positive swap really that great?
We select the most profitable currency pair, in our case it will be USDJPY. A positive swap of 0.0050% is charged if you buy the US dollar for the Japanese yen.
So, if you open a one-lot buy trade on USDJPY, and roll it over to the next day, you'll receive 100,000 x 0.005 / 100 = $5. If the trade is open for a month, you'll receive $150.
To make things more visual, let's convert 0.005% into annualized return: 365 x 0.005 = 1.82% per annum. This amount isn't particularly impressive. However, it's worth remembering leverage: even 1:10 leverage will increase the interest rate relative to your equity to 18% per annum.
Theoretically, you could look for an even more profitable currency pair, but given the current interest rates, you're unlikely to find a carry trade pair that yields more than 4-5% per annum. Using 1:10 leverage, the yield is 40-50% per annum.
After all, you trade through brokers, and they have their own arithmetic when calculating interest rates, so the indicator of probable profitability is significantly reduced.
As for the leverage size, it is quite risky to use a value greater than 1:10, since the strategy involves long-term transactions and the position needs to withstand possible trend corrections .
Ultimately, the carry trade strategy can be considered only as a source of additional profit, but it's definitely not worth counting on for significant gains. Since you won't be able to maintain the trade for an entire year, the trend will likely reverse, requiring you to close the position.
