Negative Carry Pair

DEFINITION of 'Negative Carry Pair'

A forex trading strategy in which a long position is held on a low-interest currency and a short position is held on a high-interest currency. A negative carry pair is the inverse of a positive carry. Because there is a cost with maintaining the long position until the expiration of the position, it is considered "negative". A negative carry implies that the futures price is higher than the current spot price of the underlying asset.




BREAKING DOWN 'Negative Carry Pair'

For countries with high short-term rates, the cost of the negative carry on a low-yielding reserve can be serious. For example, a long USD/EGP position when annual interest rates in Egypt are 8.5% and interest rates in the U.S. are 1% will cost 7.5% a year in carry. The investor can either abandon the option and forgo potential future returns created by interest rate volatility, or sell EGP and incur the cost of borrowing the currency at 8.5% and lending U.S. dollars at 1%.

RELATED TERMS
  1. Carry Trade

    A trading strategy that involves borrowing at a low interest ...
  2. Negative Carry

    A situation in which the cost of holding a security exceeds the ...
  3. Positive Carry

    A strategy of holding two offsetting positions, one of which ...
  4. Funding Currency

    The currency being exchanged in a currency carry trade. A funding ...
  5. Cost Of Carry

    Costs incurred as a result of an investment position. These costs ...
  6. Full Carry

    A futures market in which the price difference between contracts ...
Related Articles
  1. Trading

    Currency Carry Trades 101

    This strategy can provide returns even if the currency pair doesn't move a cent.
  2. Trading

    8 Basic Forex Market Concepts

    We go over some of the things you need to understand before you can trade currencies.
  3. Trading

    The Credit Crisis And The Carry Trade

    When boom times turned to bust, these trades proved devastating for traders and the broader markets.
  4. Investing

    Understanding Carrying Value

    Carrying value is the value of an asset as listed on a company’s balance sheet. Carrying value is the same as book value.
  5. Trading

    The Forex Market: Who Trades Currency And Why

    The forex market has a lot of unique attributes that may come as a surprise for new traders.
  6. Markets

    One Third of Soveriegn Debt Has a Negative Yield

    Total sovereign debt carrying a negative interest rate rose to $10.4 trillion in May
  7. Investing

    Explaining Carrying Cost of Inventory

    The carrying cost of inventory is the cost a business pays for holding goods in stock.
  8. Markets

    The Negative Rates of Europe's Central Banks

    We are currently seeing negative central bank deposit rates and government and corporate bonds with negative yields, but there are investors buying into these securities. Why?
  9. Trading

    Top 7 Questions About Currency Trading Answered

    Whether you're puzzled by pips or curious about carry trades, your queries are answered here.
  10. Markets

    Examples Of Negative Interest Rates

    Negative interest rates seem like an abstract notion. But, they have practical consequences for an economy and are present all around us.
RELATED FAQS
  1. How do I close a long position in forex?

    Learn the different ways that traders close out existing long positions in the forex market, depending on whether their brokers ... Read Answer >>
  2. Why would investors with lots of cash invest in bonds with negative yield?

  3. What's the difference between a long and short position in the market?

    Understand long and short positions for stocks and option contracts; combine long and short positions for added leverage ... Read Answer >>
  4. How do you make money trading money?

    Investors can trade almost any currency in the world. Investors, as individuals, countries, and corporations, may trade in ... Read Answer >>
  5. How is rollover interest calculated?

    In the forex market, all trades must be settled in two business days. Traders who want to extend their positions without ... Read Answer >>
  6. What does rollover mean in the context of the forex market?

    In the forex (FX) market, rollover is the process of extending the settlement date of an open position. In most currency ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center