From Tokyo to London, via Frankfurt or New York, Red dominated the markets on August 5.. ghost recession in the united states, After the economic data was released a few days ago

Which came below expectations Stock indices around the world were shaken. And keep investors away from risky assets.

The VIX, known as the “fear gauge,” measures the volatility of the S&P 500, It achieved the highest rise ever, reaching Pay 181%. But there were some factors that strengthened this movement, such as the “carry trade”.

But ultimately, what is this strategy and how did it contribute to the stock market panic?

Carry trade is one of the most popular trading strategies in the Forex market. In practice, when there is

Large differences between interest rates, You Investors borrow money in the country where rates are lowest. Then apply this value to assets that generate higher returns abroad., Buy high yielding currencies.

This strategy usually Only used between major global economies., Such as the Eurozone, the United States, Australia or the United Kingdom, Since the risks between these countries are similar, Allowing investors to focus solely on the interest rate differential.

How can a “carry trade” affect stock market panic?

For a long time, the deals were carried in yen. It was popular with investors as volatility was low. Investors were betting that Japanese interest rates would remain at record lows.

but, After 17 years without raising interest rates The Japanese Monetary Authority has raised interest rates twice this year.. As a result, the yen rose sharply against the dollar, Causing many of these transactions to generate losses.