As previously mentioned, by using leverage you can hold a much larger position, and subsequently earn more in interest than your actual capital alone would allow. This is why leverage is an integral part of any successful carry trade strategy.
Forex brokers typically offer retail traders leverage up to 1:30. By taking full advantage of this, a £333 deposit would see you earning interest on an investment of £10,000.
You do need to factor in the costs associated with borrowing funds. With a £333 margin, you essentially have a £9,667 loan, which your broker may well charge you interest on for the duration of the trade. Make sure you’re aware of all the costs involved to ensure that they do not severely impact your potential profit.
Of course, leverage is not without its downsides. If a positive carry trade was to be affected by a sudden change in interest rates and become a negative carry trade, you would then be paying interest on the £10,000.
With that in mind, leverage should be used wisely and in conjunction with a robust carry trade strategy that considers all aspects of potential risk.
