Funding Currencies

Forex speculators (people looking to make a buck off of foreign exchange) use low-interest rate currencies as funding currencies. A funding currency is the currency that a forex trader bets they can make money on by using it to buy higher-yield assets.

The Swiss Franc, the US dollar, the euro, and the Japanese yen have all been funding currencies, so there’s no shame in it. They’ve all been there.

This type of forex speculating isn’t for the faint of heart, since losers of the bet can lose big. To even attempt making any amount of money with the carry trade strategy takes a lot of money at the start. Traders in this market have to keep an eye on currency appreciation and the asset’s movements, especially if their funding currency isn’t the trader’s local currency. Risky business, we say.