The system of borrowing or selling a financial instrument with a low interest rate is called Carry trade. It enables you to turn around and purchase a financial instrument with a higher interest rate. This allows you to collect a higher interest on the financial instrument you purchased while you are paying the lower interest rate on the instrument you sold or borrowed—and this becomes you profit. These interest payments occur every trading day, depending on the trader’s position. Every position is closed at the end of the forex day, but if a trader holds a position to the next day, he or she won’t see it. Brokers will usually then credit the trader overnight interest rate between the two currencies.
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