About

A carry trade exploits the interest rate differential between two currencies: you borrow in a low-yield currency and invest in a high-yield one, capturing the spread as profit. The strategy appears straightforward, but the risk is concentrated in exchange rate volatility. A 3% annual spread can be wiped out by a 3% adverse currency move in a single week. Leverage of 10× amplifies both the carry income and the drawdown. The 2008 JPY unwind demonstrated that years of accumulated carry can evaporate in days when volatility spikes and correlations converge to 1. This calculator computes net carry profit, break-even depreciation thresholds, and annualized returns so you can quantify exactly how much currency movement your position can absorb before turning negative.

Inputs assume continuous compounding is not applied; simple interest is used, consistent with how most brokers quote swap rates. The model does not account for bid-ask spreads on swaps, transaction costs, or central bank intervention risk. Pro tip: monitor the VIX and the funding currency's implied volatility surface. When the VIX crosses above 20, carry trades historically suffer drawdowns as capital flows reverse into safe-haven currencies.

Formulas

The net carry trade profit for a given holding period under simple interest:

Carry Profit = P × (r_invest − r_borrow) × D365 × L

When exchange rate movement is factored in, the total return becomes:

FX Gain = P × L × S_exit − S_entryS_entry

Total Return = Carry Profit + FX Gain

The break-even depreciation threshold indicates the maximum adverse currency move before losses begin:

BE_% = (r_invest − r_borrow) × D365

Annualized return from the total holding-period return:

R_ann = ((1 + Total ReturnP)^365D − 1) × 100

Where P = principal (notional investment), r_invest = annual interest rate of the investing (high-yield) currency as a decimal, r_borrow = annual interest rate of the funding (low-yield) currency as a decimal, D = holding period in days, L = leverage multiplier, S_entry = exchange rate at entry (units of funding currency per 1 investing currency), and S_exit = exchange rate at exit.

Reference Data

Currency Pair	Funding Rate	Investing Rate	Spread	Historical Carry Direction	Volatility Risk
JPY → AUD	0.10%	4.35%	4.25%	Long AUD/JPY	High (risk-off sensitive)
JPY → NZD	0.10%	5.50%	5.40%	Long NZD/JPY	High
CHF → USD	1.75%	5.50%	3.75%	Long USD/CHF	Moderate
JPY → MXN	0.10%	11.00%	10.90%	Long MXN/JPY	Very High (EM risk)
EUR → TRY	4.50%	50.00%	45.50%	Long TRY/EUR	Extreme
JPY → USD	0.10%	5.50%	5.40%	Long USD/JPY	Moderate
CHF → AUD	1.75%	4.35%	2.60%	Long AUD/CHF	Moderate
EUR → BRL	4.50%	10.50%	6.00%	Long BRL/EUR	High (EM risk)
JPY → GBP	0.10%	5.25%	5.15%	Long GBP/JPY	Moderate-High
CHF → NOK	1.75%	4.50%	2.75%	Long NOK/CHF	Moderate
EUR → ZAR	4.50%	8.25%	3.75%	Long ZAR/EUR	High
JPY → CAD	0.10%	5.00%	4.90%	Long CAD/JPY	Moderate
USD → INR	5.50%	6.50%	1.00%	Long INR/USD	Low-Moderate (RBI controls)
JPY → IDR	0.10%	6.25%	6.15%	Long IDR/JPY	High (EM risk)
EUR → PLN	4.50%	5.75%	1.25%	Long PLN/EUR	Moderate

Frequently Asked Questions

Leverage multiplies the notional position size. At 10× leverage, a 4% interest differential on $10,000 generates carry as if the position were $100,000. However, a 1% adverse FX move also creates a 10% loss relative to your actual capital. The break-even depreciation threshold shrinks proportionally with leverage: at 10×, the investing currency only needs to depreciate 110 of the un-leveraged threshold to trigger a net loss.

Most forex brokers credit or debit swap points daily using simple interest conventions. The overnight rollover rate is calculated as r ÷ 365 (or 360 for USD-based pairs). Compounding would marginally increase the result over long holding periods, but it does not reflect how swap credits are actually applied to trading accounts. For holding periods under 90 days, the difference between simple and compound interest is negligible relative to exchange rate volatility.

Funding currencies like JPY and CHF appreciate rapidly during risk-off episodes because traders unwind carry positions simultaneously. This creates a feedback loop: rising funding currency → margin calls → forced liquidation → further appreciation. In October 2008, USD/JPY dropped from 106 to 90 in weeks, erasing years of carry income. The VIX index above 25 historically correlates with carry trade drawdowns exceeding 2 standard deviations.

The break-even threshold represents the maximum percentage the investing currency can fall against the funding currency before carry profit is entirely offset. For example, with a 5% rate differential over 180 days, the threshold is approximately 2.47%. If the AUD depreciates more than 2.47% against JPY in that period, the trade loses money regardless of the carry earned. This metric is calculated without leverage; with leverage, the capital loss is amplified but the threshold percentage remains the same.

This calculator expects the rate as units of the funding (borrowing) currency per 1 unit of the investing currency. For a JPY → AUD trade, enter the AUD/JPY rate (e.g., 97.50 means 1 AUD = 97.50 JPY). If the exit rate is higher (e.g., 99.00), the investing currency appreciated, yielding an FX gain. If lower, the investing currency depreciated, creating an FX loss that may offset carry income.

No. Broker swap rates typically differ from the raw central bank rate differential by 0.5 to 2.0% annually, depending on the pair and broker markup. Some brokers charge asymmetric swaps where the debit exceeds the credit. To approximate real-world results, reduce the investing rate or increase the borrowing rate by your broker's swap spread. Also factor in the bid-ask spread on entry and exit, which for exotic pairs can exceed 20 pips.