Hi all - I understand the carry trade: trader believes UCIRP doesn’t hold, borrows in low-yielding currency, invests in high yielding currency, and expects the future spot rate to not change so much that it eliminates the opportunity to generate a return.
What I am not clear on is trading the forward rate bias, which I’ve been told is the same thing as the carry trade.
If trading the forward rate bias involves selling forward the currency that trades at a premium and buying forward the currency that trades at a discount, how is there a return here? What are the mechanics here, and how is it equivalent to a carry trade?
Thank you!