Carry
In forex trading, carry refers to the net interest income (positive carry) or net interest cost (negative carry) generated by holding an open position overnight. It arises from the interest rate differential between the two currencies in a currency pair.
Quick Definition Box
Carry is the daily interest income or cost embedded in a forex position. If you hold a long position in a high-yielding currency against a low-yielding currency, you earn positive carry each day the position stays open. Negative carry means you pay interest daily. Carry is the core mechanism behind the carry-trade strategy.
Detailed Explanation
When you hold a forex position past the daily rollover cut-off (typically 5:00 PM New York time), your broker applies an overnight swap rate. This rate reflects the interest-rate differential between the two central banks governing the currencies in the pair, adjusted for broker fees and liquidity costs.
For example, if the Reserve Bank of Australia sets the cash rate at 4.35% and the Bank of Japan sets its rate at 0.10%, holding a long AUD/JPY position generates a positive carry of roughly 4.25% annualized. Holding short AUD/JPY results in negative carry of a similar magnitude (plus broker margin).
Positive carry occurs when you are long the higher-yielding currency and short the lower-yielding currency. The position earns interest every day it remains open.
Negative carry occurs when you are long the lower-yielding currency and short the higher-yielding currency. You pay interest daily, which erodes returns if the exchange rate does not move favorably enough to compensate.
Carry is distinct from capital gain or loss. A trade can have positive carry but still be unprofitable if the exchange rate moves against you by more than the accumulated interest income. This is the core risk in carry-oriented strategies.
Why Carry Matters for Traders
Carry affects every position you hold overnight. Even if you are not running an explicit carry-trade strategy, positive or negative carry changes your net P&L on any swing or position trade. Traders who hold positions for days or weeks must account for accumulated swap costs or credits in their return calculations.
Carry also influences directional bias at the macro level. When interest rate differentials widen—typically during economic divergence between countries—institutional flows tend to favor the high-carry currency, creating sustained trends in pairs like AUD/JPY, NZD/JPY, or USD/MXN.
How XM Compares
XM publishes swap rates (the practical expression of carry) for all currency pairs in its trading platform specifications. Swap rates can be positive or negative for both long and short positions, depending on the current interest rate differential and XM's own liquidity costs. Traders should verify current swap rates directly on the XM website, as rates change with central bank decisions and market conditions.
Compliance Footer
⚠ This glossary entry is educational. Forex/CFD trading carries high risk. This is not investment advice.
See all glossary entries: /en/glossary