Carry Trade Strategy

Earn interest rate differentials while holding currency positions overnight.

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Overview

What is Carry Trade Strategy?

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.

How It Works in auto-Trading

Automate It

auto-Trading monitors funding rate data across all connected exchanges for perpetual futures carry opportunities. When the annualised funding rate exceeds a user-defined threshold, the system simultaneously opens a short perpetual position and a long spot position of equal notional value, delta-neutralising the trade. The strategy automatically closes when funding rates normalise below the exit threshold.

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External Resources

Learn from Trusted Sources

Investopedia — Carry Trade↗

Full explanation of the currency carry trade mechanics and risks.

BabyPips — Carry Trading↗

BabyPips' detailed guide to forex carry trading.

CoinGlass — Funding Rates↗

Live funding rates across all major crypto perpetual exchanges.

Strategy Code

Pick a script below, copy it, and use it on your chart.

Pine Script (TradingView)

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)
momLen  = input.int(10,  "Momentum Length")
trendLen = input.int(50, "Trend EMA")
rsiLen  = input.int(14,  "RSI Length")
mom    = close - close[momLen]
ema50  = ta.ema(close, trendLen)
r      = ta.rsi(close, rsiLen)
// Buy when momentum is positive, price above trend EMA, RSI not overbought
longSignal  = mom > 0 and close > ema50 and r > 50 and r < 70
exitSignal  = mom < 0 or close < ema50
if longSignal
    strategy.entry("Mom", strategy.long)
if exitSignal
    strategy.close("Mom")
plot(ema50, "Trend EMA", color=color.orange)

ThinkScript (thinkorswim)

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;
AddOrder(OrderType.BUY_AUTO, buySignal, close, 1, Color.GREEN, Color.GREEN, "Momentum Buy");
AddOrder(OrderType.SELL_AUTO, sellSignal, close, 1, Color.RED, Color.RED, "Momentum Exit");
plot Mom = mom;
Mom.SetDefaultColor(Color.CYAN);

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