Carry trade

### What you are actually being paid Nobody is paying you for being right. The carry is the gap between two interest rates, paid in small daily instalments, for as long as the position stays open. Long AUDJPY is the classic: you are holding the higher-yielding currency and you are short the one pinned near zero, so the differential lands on your side of the ledger. Flip the same pair around and that identical differential is charged against you every single night. ### How the money actually reaches your account Spot FX settles two business days forward (T+2). Any position still open at the daily rollover gets pushed to the next value date, and the interest difference between those two dates is what your broker debits or credits. Dukascopy's rollover documentation puts that rollover at 21:00/22:00 GMT depending on the season, which works out to the 5pm New York cut, and explains why **Wednesday night is charged as three days**: Thursday's value date jumps the weekend to Monday, so Saturday and Sunday accrue too. Two details that quietly cost people money: - Brokers quote long swap and short swap separately, and not symmetrically. Dukascopy notes that hedged exposures still incur a swap cost, so being long and short the same pair is not free. - Swap is not a fixed feature of the pair. It gets re-priced whenever the central banks behind it move. The rate you signed up for can shrink, or invert, without you doing anything. ### Why it unwinds instead of drifting The trade pays slowly and takes it back at once because it is crowded and it is leveraged. When the funding currency strengthens, everyone in the trade is losing on the FX leg at the same moment, margin requirements rise into the volatility, and the exit becomes forced rather than chosen. The BIS called this dynamic *procyclical deleveraging and margin increases* in [Bulletin No 90](https://www.bis.org/publ/bisbull90.htm), its post-mortem of August 2024. ### The worked example: August 2024 The BIS put FX carry positions at roughly ¥40 trillion (about $250 billion) going into that episode, a figure it said was, if anything, biased down by data gaps. The Bank of Japan raised rates in late July 2024, a weak US jobs print followed, and the yen ran: Fox Business reported it had risen 14% in less than a month. On 5 August 2024 the Nikkei 225 fell 12.4%, a loss of 4,451.28 points, the largest one-day point fall in the index's history and its worst day in percentage terms since the October 1987 crash. The people caught were not merely short yen. They had *spent* the borrowed yen on other assets, so both legs had to be covered at once. ### The mistake Sizing the position off the carry instead of off the drawdown. The interest is the smallest number in the trade. What the pair can do to you in one session is the largest. And in a disorderly move your stop is not a promise: OANDA's own execution guidance says a stop triggered in a fast market or a liquidity gap effectively becomes a market order, and price can skip the level entirely.