What it is — Carry Trade
Every currency has a central-bank interest rate. A carry trade buys the higher-rate currency against the lower-rate one to earn the difference daily — credited (or charged) as swap on positions held past the 5pm ET rollover.
Buy AUD/JPY when Australia pays 4.35% and Japan 0.25%: you own the gap. Sell it and you pay the gap every day. Carry is one of the three classic return sources in FX — alongside direction and roll-down — and it rewards patience.
Why it matters — Carry Trade
- It pays you to wait. Range-riding position trades earn while they sit.
- It shapes trends. Rate-gap pairs often trend for months as capital chases yield.
- It matters even if you never seek it: holding the “wrong” side of a gap quietly bleeds your account — check swap before holding through weekends.
The classic carry, in dollars
Reuse the site’s standing rate gap: Australia at 4.10%, Japan at 0.25% — 3.85 points. Buy one standard lot of AUD/JPY (long the high-yielder, short the low-yielder) and the gap accrues roughly 3,850 AUD a year — about $7 a day at 0.70 AUDUSD, credited at the nightly rollover (see swap), tripled on Wednesdays for the weekend. That is the seduction: income that arrives whether or not the trade goes anywhere. The exit from the fantasy is equally concrete — AUD/JPY’s normal daily range is many times $7. One ordinary down day erases a week of carry; one violent risk-off week can erase a year. Carry is the coupon, never the thesis.
What kills a carry trade
Carry positions are short volatility wearing an income costume: in calm markets the coupon compounds and everyone is a genius; in stress, the low-yield currency (historically the yen) strengthens exactly when everything else falls, so the FX loss and the strategy’s death arrive in the same candle — and crowded carry unwinds accelerate as everyone’s stop hits everyone else’s. The survivors’ version is small and boring: position size that treats the coupon as gravy and the pair’s full normal swing as the actual risk (the formula, as always), no leverage fantasies on “free money,” and an exit planned for the scenario where the rate gap narrows — because central banks move, and the carry you bought is not the carry you keep.
Frequently asked questions — Carry Trade
Where do I see the exact swap rates?
Your broker publishes a swap table per instrument (MT5: right-click symbol → Specification). Numbers differ per broker because they include a markup.
Is the carry trade still profitable?
The mechanics never stopped working; the appeal rises and falls with rate gaps. What stays constant is the risk shape — small steady gains, occasional large fast losses — which is why size, not rate-hunting, decides whether carry works.
How do I check the swap rate before holding a trade overnight?
Your broker's platform lists swap per lot per night for every pair (long and short), usually in the contract specifications. Check it before the trade, not the morning after — swaps vary widely between brokers and pairs.
Why do carry trades crash sometimes?
When risk appetite flips — a crisis, a fast rate-change surprise — crowded carry unwinds violently: yield-chasers sell the high-yielder all at once. Carry earns slowly and can give back quickly; size accordingly.
Related terms — Carry Trade
Related tools — Carry Trade
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