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In the last section, we know that carry trade can be the chance for a high return, but that does not mean that there are no risks with a carry trade, because there are.

The risk of losing money with a carry trade is a definite one, but smart investors use forex trading strategies to minimize these risks.

Carry trade risks

1.Currency risk

Since carry trades will generally be held unhedged, this means that any return from the interest rate differential needs to be in excess of any adverse exchange rate movements in the carry trade currency pair.

As a result, a currency pair will usually be chosen for the carry trade for which the trader forecasts the higher interest rate currency will appreciate over the chosen time frame relative to the lower interest rate currency.

2. Leverage risk

An important risk factor for retail forex traders to consider with the carry trade is that if substantial leverage is used to implement it, then sharp unfavorable market movements could result in losses that may prompt