Report Gbp Carry Trade in House prices and the economy Posted February 12, 2009 Seeing as we are going all Japanese with 0% interest rates, I'd like to know how I can get in on the British version of the Yen carry Trade. How / when can it be done? easiest way is to enter into currency forward contracts. that itself aint the easiest thing to do... the highest interest paying currencies have legal restrictions on people entering into such contracts ( rouble, thai baht, etc) so you need to enter into a 'non deliverable forward' this is technically the same thing, but legally you are allowed to do it. ok, next step is to pick the currency pair. usually you would pick a portfolio to minimise your risk, but you need to have moderate understanding of the underlying economy.. i.e. avoid zimbabwea. http://en.easy-forex.com/Int/interestratetable.aspx lets say you are interested in 3 month contracts... AUD GBP looks like a nice pair (both generally stable underlying economies), so we see there is an interest rate differential (and hope that the rates DONT CHANGE). now, heres the carry bit. if the spot rate is 2.00 then the 3 month forward rate will be about 0.5% off that due to the interest rate differential. what you do is buy/sell the forward and (assuming spot rates stay the same) you will earn the differential as the forward matures. now the risks.. spot rates shift around 1% each day, the markets are very volatile. your bet might go the wrong way, by 10, 20 or 30% in the 3 months where you earn 0.5%. interest rate changes by the various central banks will upset things for you. IMO there higher return, lower risk investments. remember the JPY has moved 50% in just a few months. nobody is saying it wont happen again (in either direction).