In short
- A carry trade buys a higher-yielding currency against a lower-yielding one.
- Returns come from the interest differential plus or minus price changes.
- Retail financing mark-ups and sudden unwinds are the main risks.
How it works
When you hold a currency position overnight, you effectively earn the interest rate of the currency you bought and pay the rate of the currency you sold. If the difference is large enough, holding the position can earn a daily credit — the "swap".
Why retail carry is harder than it looks
Brokers apply a mark-up to the benchmark rates, so a positive interest differential can shrink to a small credit, or even a charge. Always check the actual long and short swap rates in your platform before relying on carry.
The risk: unwinds
Carry trades tend to do well in calm, risk-on markets. When fear rises, many traders close them at once, and high-yielding currencies can fall sharply in days — wiping out months of interest. Leverage magnifies that risk.
Managing carry positions
- Use small position sizes and wide, planned stops.
- Watch central bank expectations — changes to rate paths affect carry directly.
- Monitor risk sentiment and volatility.
- Remember that most retail CFD accounts lose money; carry doesn't change that.
Frequently asked questions
Can retail traders earn carry?
Sometimes, but brokers' financing mark-ups often reduce or remove the positive carry. Check the actual swap rates on your platform.
What is a carry unwind?
A rapid reversal when many traders close carry positions at once, often during market stress, causing sharp falls in high-yielding currencies.
CFDs and spread bets are complex instruments and come with a high risk of losing money rapidly due to leverage. Most retail investor accounts lose money when trading these products. You should consider whether you understand how they work and whether you can afford to take the high risk of losing your money. Content is general information, not financial or tax advice.