Earn interest rate differentials while holding currency positions overnight.
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Overview
The carry trade is one of the most consistently profitable strategies in foreign exchange markets over long periods. The basic concept: borrow in a low interest-rate currency (the "funding currency"), convert to a high interest-rate currency (the "target currency"), and collect the interest rate differential (the "carry") as daily profit.
Classic carry trades involve borrowing Japanese Yen (historically near 0% rates) or Swiss Francs to fund positions in Australian Dollars, New Zealand Dollars, or emerging market currencies with significantly higher rates. The profit accumulates each day the position is held, making it especially appealing in stable, low-volatility market environments.
The strategy's primary risk is the "carry trade unwind" — a sudden rush to close all carry positions simultaneously during risk-off episodes. When volatility spikes (a global crisis, a central bank surprise), carry traders rush to exit, causing the funding currency to appreciate sharply against the target currency. These unwinds can wipe out months of accumulated carry income in a single day.
In crypto, the carry trade equivalent is the funding rate arbitrage on perpetual futures: when the perpetual trades at a premium to spot (positive funding rate), short the perpetual and hold spot to collect the funding rate as income. Rates can be extremely high during bull markets, making this one of the most lucrative low-risk crypto strategies.
Strategy Code
This is a TradingView Pine Script strategy example for this page concept. Paste it into the TradingView Pine Editor, add it to your chart, and run it in the Strategy Tester.
//@version=6
strategy("Carry Trade Strategy", overlay=true)
fastLen = input.int(20, "Fast Length")
slowLen = input.int(50, "Slow Length")
fast = ta.ema(close, fastLen)This is a thinkorswim ThinkScript strategy example for this page concept. Open thinkorswim, create a custom strategy, paste the script, and apply it to your chart.
input length = 10;
def mom = Momentum(length = length);
def trend = ExpAverage(close, 50);
def buySignal = mom > 0 and close > trend;
def sellSignal = mom < 0 or close < trend;Join thousands of traders who use auto-Trading to execute this strategy automatically, 24/7.
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