Funding Currency

AAA

DEFINITION of 'Funding Currency'

The currency being exchanged in a currency carry trade. A funding currency typically has a low interest rate. Investors borrow the funding currency and take short positions in currencies with higher interest rates.

INVESTOPEDIA EXPLAINS 'Funding Currency'

The Japanese yen has historically been popular as a funding currency among forex traders because of its low interest rate. For example, a trader will borrow Japanese yen and purchase a currency with a higher interest rate, such as the Swiss franc.

RELATED TERMS
  1. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
  2. Currency

    A generally accepted form of money, including coins and paper ...
  3. Currency Risk

    A form of risk that arises from the change in price of one currency ...
  4. Arbitrage

    The simultaneous purchase and sale of an asset in order to profit ...
  5. Forex - FX

    The market in which currencies are traded. The forex market is ...
  6. Currency Carry Trade

    A strategy in which an investor sells a certain currency with ...
RELATED FAQS
  1. How do I close a long position in forex?

    Closing a long position in forex trading depends on whether you are using a broker operating under U.S. trading regulations. In ... Read Full Answer >>
  2. Where did the term 'pip' in currency exchange come from?

    The term pip is an acronym for percentage in point or price interest point. It measures a unit of change within a pair of ... Read Full Answer >>
  3. How do changes in national interest rates affect a currency's value and exchange ...

    All other factors being equal, higher interest rates in a country increase the value of that country's currency relative ... Read Full Answer >>
  4. How do I implement a forex strategy when spotting a Upside Gap Two Crows Pattern?

    The upside gap two crows is, in theory, a bearish reversal pattern found in both the stock and forex markets. While there ... Read Full Answer >>
  5. What are the most common market indicators forex traders follow?

    There are literally hundreds of technical indicators for forex traders to choose from, however, there are a few which may ... Read Full Answer >>
  6. What is the difference between pips, points, and ticks?

    Point, tick and pip are terms used to describe price changes in the stock market and other markets. While traders and analysts ... Read Full Answer >>
Related Articles
  1. Forex Education

    The Credit Crisis And The Carry Trade

    When boom times turned to bust, these trades proved devastating for traders and the broader markets.
  2. Forex Education

    The "Turn To The Carry" Trade

    This variation on the turn to trend setup can help longer term traders make more potent trades.
  3. Forex Education

    Profiting From Carry Trade Candidates

    Capitalize on the yield of the interest rate differential by using flags and pennants.
  4. Forex Education

    Top 7 Questions About Currency Trading Answered

    Whether you're puzzled by pips or curious about carry trades, your queries are answered here.
  5. Forex Education

    8 Basic Forex Market Concepts

    We go over some of the things you need to understand before you can trade currencies.
  6. Forex Education

    Currency Carry Trades 101

    This strategy can provide returns even if the currency pair doesn't move a cent.
  7. Forex Education

    Make The Currency Cross Your Boss

    Tap into a world of possibilities by going beyond the simple pro- or anti-dollar trade.
  8. Forex Education

    The U.S. Dollar And The Yen: An Interesting Partnership

    In order to make the USD/JPY relationship more understandable, we must look at the yen in terms of treasury bonds.
  9. Mutual Funds & ETFs

    Invest in Emerging Market Currencies with this ETF

    Why this emerging market currency ETF needs to be on your radar.
  10. Forex Strategies

    An Introduction To Trading Forex Futures

    We explain what forex futures are, where they are traded, and the tools you need to successfully trade these derivatives.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center