What is a Currency Carry Trade?

Borrowing a currency with a lower interest rate and lending out a currency with a higher interest rate to obtain interest margin benefits is called a carry trade. The main risk of carrying transactions is that the appreciation of low interest rate currencies and the depreciation of high interest rate currencies cause the spread between the two currencies to disappear. Generally speaking, low interest rate currencies tend to depreciate, and high interest rate currencies tend to appreciate.

Carry transaction

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Borrowing a currency with a lower interest rate and lending out a currency with a higher interest rate to obtain interest margin benefits is called a carry trade. The main risk of carrying transactions is that the appreciation of low interest rate currencies and the depreciation of high interest rate currencies cause the spread between the two currencies to disappear. Generally speaking, low interest rate currencies tend to depreciate, and high interest rate currencies tend to appreciate.

Borrowing a currency with a lower interest rate and lending out a currency with a higher interest rate to obtain interest margin benefits is called a carry trade. The main risk of carrying transactions is that the appreciation of low interest rate currencies and the depreciation of high interest rate currencies cause the spread between the two currencies to disappear. Generally speaking, low interest rate currencies tend to depreciate, and high interest rate currencies tend to appreciate.