Covered Interest Arbitrage

This is a wildly complicated trading strategy used when investing in currency. It involves looking at the difference between interest rates in conjunction with two currencies, and attempting to profit from a trade. It’s "covered" because the trader uses a forward contract to hedge their risk.

Hedging costs money though, because the trader is benefiting from less risk. So it wouldn’t make sense to use this type of strategy if it costs more to hedge than the difference in interest rates would yield.