Most Forex brokers are just fine day trading and they have no “interest” in adding or changing things by getting involved in Forex carry trading risks. If they can buy and sell daily a few times and make a substantial amount of pips, then there's no reason to try anything else.
However for some, the idea of Forex carry trading is an attractive one and often doesn't replace the Forex brokers regular day trading, but serves as an addition to his regular Forex trading.
What It Is
For those that are uninitiated, the concept of Forex carry trading comes from the fact that in Forex trading there is really no such thing as carrying a position overnight. Simplistically, the broker evens up the trades, and re-executes the trades the following trading day. This involves interest, because you are, after all, dealing with foreign currencies. So, either interest is either made or lost on a daily basis if you hold a trade overnight; whether you know it or not.
Every currency carries with it an interest rate. So, at the end of every day the owner of the currency either gains interest or loses interest. By virtue of the Forex trade itself, because you're buying one currency and selling another currency, you're both gaining interest and losing interest. The difference in those numbers is the percentage of interest you'll be making. That amount is automatically put into your margin account. It sounds, from the outset, that Forex carry trading is a great way to make money. But nothing is that easy.
Still trading
The bottom line of this whole process, and should not be taken for granted, is that the Forex trader is still trading Forex. That sounds like an obvious statement, but it can get lost in the shuffle and attraction of Forex carry trading. In other words, if the Forex pair you're trading and carrying is losing money, then any Forex trader is not going to be able to hang onto it simply for the overnight interest rate generated.
It's not a Catch-22 situation, but it is something that always needs to be addressed. Firstly, the Forex pair you're trading should be a pair that has relatively good liquidity. If it begins to move against you, you'll want to be able to get out. And secondly, don't trade the pair just because you're planning making money from the Forex carry trading aspect of it. It should be a secondary consideration; not a primary consideration.
Risks are risks
Even with the Forex carry trading profit generated overnight, this can change, too. If a country suddenly decides to lower or raise their interest rates, this will have a direct effect on the currency you're holding in your carry trade. Nothing is set in stone in the Forex market. It's not often that a country suddenly changes its interest rates, but it has been know to happen. If you're the type that will lose sleep over worrying about this happening; it's best to stick with simply day trading.
Forex carry trading risks are there, however the profit coming from the process can lead to some serious money that many Forex traders find hard to ignore.
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