A carry trade is a strategy where a trader borrows (sells) a currency with a low interest rate and uses the funds to buy a currency with a higher interest rate, profiting from the interest rate differential. The daily swap credit is the carry. Carry trades work best in stable, low-volatility environments and can be highly profitable over months, but they carry significant risk if the high-yield currency depreciates sharply.
You buy AUD/JPY because Australia’s interest rate is 4.35% and Japan’s is 0.5%. Each night you hold the position, you receive a positive swap credit reflecting the ~3.85% differential. Over 3 months, the carry income adds up — but if the yen suddenly strengthens, the capital loss can wipe out months of carry.
Ready to trade?
A-Book execution, 100+ instruments, and 24/5 multilingual support.