Interest

When you buy some currency, you will either be paid or have to pay interest. Remember with going long EURUSD, you are in fact buying EUR and selling USD. Well, as it turns out, each of those has an interest rate attached to it. As a very simple example, let's say buying EUR means you are given 10% interest (on the total amount you bought - not just on the margin you used). And let's say selling USD means you have to pay 8% interest. You get the difference: 10% - 8% = 2%. So you get 2% interest on about US$123K of currency. And you get that regardless of if you lose or win money on that particular trade.

But if you went short EURUSD, you are doing the opposite. So, and remember this is just a simple example, you would have to pay 10% interest on the EUR, and you would get 8% interest on the USD. You get the difference: 8% - 10% = -2%. In other words, you have to pay 2% interest, regardless of if you lose or win money on that particular trade.

The interest rates are not symmetrical like that though. Banks never pay the same interest that they ask for. So if you were given 10% for EUR and asked for 8% for USD (making a difference of 2% which you get), then the opposite would probably be more like pay 12% for EUR and are given 6% for USD (making a difference of 6% which you have to pay).

Here's the good part - sometimes the difference in interest rates is so great that you can get a WHOLE LOT of interest. Like 250%!

And this leads people into a type of trading called carry trading.
 

Carry Trading

Basically, buy and hold. The trader earns their money from the interest. If the currency goes in their favour, they will get the profit from the trade plus the interest. If the currency doesn't go in their favour, their loss from the trade will be offset somewhat by the interest.

Which currencies are best for this? It changes when a country's interest rate changes, and in the recent economic climate many countries have been lowering their interest rates dramatically in order to boost spending. You're looking for the biggest difference in interest rates, so you want a country which has a high interest rate versus one with a very low interest rate (normally Japan, so check out GBPJPY, AUDJPY, etc).