How it works
The apparent yield advantage is only one part of the return. Exchange-rate moves, financing mark-ups and changes in policy expectations can dominate the income.
What to check
Measure the expected financing after product costs and consider how much currency depreciation would erase the carry. Leverage can magnify both the income and the exchange-rate loss.
- Calculate net carry after costs
- Measure break-even currency move
- Plan for crowded-trade unwinds
Limits and risks
Carry trades can unwind quickly when risk appetite changes. High-yielding currencies can fall sharply at the same time many traders try to exit.
Primary sources
BIS 2025 Triennial Central Bank Survey↗FCA: Contracts for difference (CFDs)↗General information only. Investment products can lose value, and terms, fees and regulation can change.