What is Carry Trade?

A strategy that involves borrowing a currency with a low interest rate to buy a currency with a higher interest rate.

In-Depth Explanation

The goal is to profit from the interest rate differential (the "carry") while also potentially gaining from the exchange rate movement.

"Borrowing Japanese Yen at 0% to buy Australian Dollars at 4.5% is a classic carry trade."

Knowing the terms is just the start. Learning how to apply them is where the edge is found.