Differences Among Trend Trading, Carry Trading and Algorithmic Trading.

1. What is trend trading？

Trend trading is to use technical analysis, fundamental analysis, and fund management to obtain a probability preference when predicting the direction and secure a mathematic advantage in profit and to leverage the advantages for more profit.

Take an example of predicting the direction and path of an ant moving on the ground. By using trend trading, you are basically using known or unknown technical tools to obtain probability and mathematic advantages. Technical and fundamental analysis will gain you probability advantage which, combining with comprehensive application of fund management, will secure you a mathematic advantage. The merits of trend trading are its strong profitability and relatively high returns. But the downside is that there is always uncertainty entailed which require constant and hard work of traders and can easily wear them off.

2. What is carry trading?

Carry trading refers to the kind of market speculation that buys high-interest currencies and sells low-interest currencies and deposits the purchased high-interest currencies in that country's banks to earn interest higher than that of low-interest currencies.

Carry trading starts with converting the low-interest currencies into high-interest currencies, then deposits the high-interest currencies into the country's banking and financial institutions and ends with exchanging the high-interest currencies into low-interest currencies again.

In the forex market, other than to harvest the gap of interest rates, carry trading can also obtain the foreign exchange income that comes along with the floating interest rates of the two currencies.

High-interest currency and low-interest currency

As we all know, the eight major currencies now such as the commodity currencies including Australian dollar, New Zealand dollar, Canadian dollar, and the US dollar recently in a rising interest rate cycle are all high-interest currencies, whereas the British pound is classified as a low-interest currency. Euro, Japanese Yuan and Swiss franc are currently in a state of zero interest rate or even negative interest rate, which also makes them the first choice for selling in operating carry trading.

In addition to the major currency pairs, currencies of many emerging markets also have very high interest rates, such as South African rand, Turkish lira, etc. While they have considerable interest, however, they also face very large exchange rate fluctuations. Therefore, you might lose heavily due to a large exchange rate difference when trying to, and I would like to call for your special attention to this!

3. What is algorithmic trading?

Algorithmic trading is to profit using the occasional or consistent bugs in the market. There are volatility difference algorithm, cost regression algorithm, seasonal difference algorithm, and twisted regression algorithm. In addition to these algorithms on the market, new algorithms will be generated in the future.

Comparing to the uncertainty of trend trading, algorithmic trading has a certain degree of certainty that is even higher than carry trading. If to compare trend trading as predicting the move of ants, algorithmic trading is like a straightened rubber band. No matter how the rubber band pulls up and down, it will eventually become a straight line. This is essentially different from trend trading. Algorithmic trading is widely adopted and continuously pursued by institutions, so the disadvantage is that the profitability is not high, and the market needs to provide differences to generate opportunities. Small funds can use leverage to change risks and reap high returns.