The 0% Carry Trade

You are making a "Carry Trade" when you borrow money cheaply (low cost of borrowing the money), and invest the money in a higher yielding asset (some investment that gives you a higher return than your borrowing cost). You make money on the difference between the higher yield and the cost of borrowing (minus transaction costs etc). Very simply put, if you borrowed at x%, and invested it in something that returns y%, then your net return for the trade is y%-x%-transaction costs. Example: Currency carry trade.

Sounds like free money, right? It is, unless the cost of borrowing increases while the higher yielding asset goes bad. Or, in the case of the currency carry trade, when the currency you borrowed money in appreciates vs the one you invested the money in (Yen becomes stronger vs the US Dollar).

If you take a 0% or low interest rate credit card offer (low cost of borrowing money) and invest it in the stock market (higher yield, hopefully), you made a carry trade of sorts. What can go wrong? A couple of things. You may default on the card payment (not able to pay the money), or may pay it late, or forget to pay it off. Any of these jacks up your rate to the sky (think 18+%), not to mention fees, penalties and everything that the card company can hit you with. On top of this, if your stock investment doesnt do well, this would be one bad carry trade. Very risky. Would not recommend it.

But what if you took calculated risks, (reduce risk) and invested safely (low risk investment)? Hmm... you could actually make some real money, just like the pros who make boatloads of it on well executed currency carry trades. Here is one possible way:

The Jock Exchange : Weekend - Yahoo! Finance

The Jock Exchange : Weekend - Yahoo! Finance
Trade professional athletes the way you trade stocks. This is long overdue!