The carry trade, and what it is actually worth
A carry trade is the oldest idea in currency markets: borrow where money is cheap, hold where it pays more, and collect the difference. It works quietly for months and then gives a chunk of it back in a week. This page is what the gap is worth in our own measurements, and what makes it turn.
Policy rates from the central banks themselves, checked every trading day.
In short
- What it is
- Holding the currency with the higher policy rate against one with a lower rate, and being paid the difference every night you stay in.
- What you earn
- Two things at once: the rate gap, which is paid whether or not the price moves, and the price move itself, which can go either way.
- What you risk
- The price move is far bigger than the carry. A gap of three points a year is a little over a hundredth of a percent a night, and a bad day costs half a percent.
- Where the rates are
- On our rate differentials page, built from what the central banks publish themselves. Free to read and updated when a bank moves.
- What we measured
- We tested it on years of prices instead of taking the textbook at its word. Small over a day, better the longer it is held, never enough on its own.
- What it is not
- Not free money and not a strategy on its own. It is one of the four things we weigh, and the smallest of them over a single day.
How it works, in one example
Take any pair where one central bank holds a clearly higher policy rate than the other. Buying the high rate currency against the low rate one means you hold a deposit that pays more and owe one that pays less, and your broker settles that difference every night as swap. Sell the same pair and you pay it instead.
That is the whole mechanism. What makes it a trade rather than a savings account is that the exchange rate moves while you wait, and it moves by more in a single session than the gap pays in a month. So carry is never the reason to be in a position. It is the reason to prefer one side of it.
Which pairs have the widest gap changes when banks move, and they move at meetings you can see coming. The current gaps are on the rate differentials page, and what each bank is steering on is on the central banks page.
What the gap is worth, measured
We ran the question over our own backtests rather than repeating what the textbooks say, and the shape of the answer is consistent. Over a single day the rate gap barely lifts the odds above a coin flip. The longer the position is held, the more it shows up, which is the opposite of how most people trade it.
The same thing shows up in our own setups. Measured over 2024 to 2026, the ones that happened to go with the rate gap did better than the ones that went against it, by enough to matter and not by enough to trade on alone. How much weight that carries when a setup is chosen is part of what stays in-house.
The exact figures stay with us, for the same reason our bands and thresholds do. What is worth saying in public is that they are smaller than the ones in most adverts. A real macro edge is small per trade and consistent over many, and anything claiming a high hit rate on a daily carry position is selling something.
Why it ends badly
Everyone can see the same rate gaps, so the same positions get crowded. The currency doing the funding is by definition the one nobody wants to hold, which makes it exactly what everyone has to buy back when the mood turns.
That is why an unwind is fast and why it lands on the days equities fall. Months of carry can go in days, and the position that was quiet for a quarter becomes the loudest thing in the book.
It is also the reason risk sentiment carries the most weight in our score, up to 40 of the 100 points. The rate gap tells you which side pays. The risk mood tells you whether you will be allowed to keep it.
Questions about the carry trade
What is a carry trade?
Holding the currency with the higher policy rate against one with a lower rate, and collecting the difference for as long as you hold it. The interest is paid or charged every night the position stays open, so the carry is the part of the return that does not need the price to move at all. Carry and the rate gap
How much is the carry actually worth?
Less than most people think on a single day, and more than most people think over weeks. We measured it on our own price history rather than trusting the textbook, and the pattern held: over 24 hours the gap barely moves the odds, and it shows up more the longer a position is held. It is a real edge and it is small enough to disappear in one bad session. How we measure
What is a carry trade unwind?
The moment everyone leaves at once. Carry positions are crowded because the same rate gaps are visible to everyone, so when risk sentiment turns, the low rate currency that funded the trade gets bought back fast. Months of carry can go in days, which is why the funding currencies rally hardest exactly when equities fall.
Can you trade on carry alone?
No, and our own numbers say so. Over 2024 to 2026 the setups that went with the rate gap measured better than the ones that went against it, by enough to be worth knowing and nowhere near enough to trade on by itself. Carry tells you which side is paid to wait. It does not tell you whether the price will let you.
Where do I see the current rate gaps?
On the interest rate differentials page, built from the policy rates the central banks themselves publish. It is free to read and it updates when a bank moves. Rate differentials