Trading Idea of the Week: The Carry Trade (Part 1 of 2)

As traders and investors, we know that certain events trigger market-wide volatility much more than others. Interest rate decisions by countries fall into this category, simply due to the enormity of the implications behind each announcement. A nation’s entire money supply is directly attributable to the headline interest rate of the country. In the United States, that rate is the Federal Funds Rate, which is currently 2.5%. That’s the maximum rate banks can borrow from/lend each other in the US banking system. When the Fed Funds rate is increased, it leads to a contraction in the US money supply, essentially…...