Carry Trade Strategy: Overview and Backtest Analysis

If you are active in the financial markets, you may have heard of carry trade, especially in currency trading. It is becoming increasingly popular among retail traders. But what does the carry trade strategy mean?

A carry trade strategy involves borrowing at a low-interest rate currency and converting the borrowed amount into another currency with a higher interest rate to invest in an asset that provides a higher rate of return.

In currency trading, it typically involves selling a currency with a low-interest rate and buying a currency with a higher rate. But the strategy can be applied to other assets when the borrowed amount is deployed into assets such as stocks, commodities, bonds, or real estate denominated in the second cu

Want to know more? Let’s dive in. At the end of the article, we provide some facts about carry trade backtests.