Carry Trade Calculator
Enter the two exchange rates, the days until the trade settles, the lending and borrowing rates and the amount invested to see the carry trade profit and return.
Updated
Carry Trade Calculator
Our Carry Trade Calculator estimates what a currency carry trade earns: borrowing in a currency with a low interest rate and lending in one with a higher rate. Type the exchange rate when the trade opens, the rate when it settles, the number of days in between, the two interest rates and the amount invested. It returns the profit in money, the return for the holding period, the change in the exchange rate and the yearly carry rate. It suits forex traders sizing up a rate gap, economics and finance students, and anyone learning how interest rate differences move money between currencies.
Quick answer
Carry trade profit is amount × ((1 + yearly carry rate)^(days ÷ 360) − 1), where the yearly carry rate is (lending rate − borrowing rate) × settle rate ÷ initial rate. Lending at 4.5%, borrowing at 1.2%, with rates of 1.25 then 1.27, 90 days and 100,000 invested gives a profit of about 827.86.
- Interest rate gap: lending rate − borrowing rate, in percentage points.
- Yearly carry rate: the gap × settle rate ÷ initial rate.
- Investment return: the yearly carry rate compounded over days ÷ 360.
- Profit: amount invested × investment return. A negative gap gives a loss.
What Is a Carry Trade?
A carry trade is a strategy in which an investor borrows money in a currency with a low interest rate (the funding currency), converts it, and lends or invests it in a currency with a higher interest rate (the target currency). The gap between the two rates is the "carry". For as long as the exchange rate holds steady or moves in the investor's favour, that gap is the profit.
The Japanese yen and the Swiss franc have often been used as funding currencies because their interest rates stayed low for long periods. Currencies with higher policy rates, such as the Australian dollar or the Mexican peso, have often been targets.
Carry Trade Formula
This calculator works in four steps:
Yearly rate = (L − B)
× (1 + Spot change)
Return = (1 + Yearly rate)
^(Days ÷ 360) − 1
Profit = Amount × Return
- S0: the exchange rate when the trade opens.
- S1: the exchange rate when the trade settles.
- L: the yearly lending rate, earned on the target currency.
- B: the yearly borrowing rate, paid on the funding currency.
- Days: the number of days the trade is held.
- Amount: the amount invested.
Because 1 + spot change equals S1 ÷ S0, the yearly rate is simply the interest rate gap multiplied by the ratio of the two exchange rates. The return then compounds that yearly rate over the fraction of a 360-day year the trade is open.
How to Calculate Carry Trade Profit
A trader lends at 4.5% and borrows at 1.2%. The exchange rate is 1.2500 at the start and 1.2700 at settlement, 90 days later. The amount invested is 100,000:
= 0.016 (1.6%)
Yearly rate = 0.033 × 1.016
= 0.033528 (3.3528%)
Return = 1.033528^(90 ÷ 360) − 1
≈ 0.0082786 (0.8279%)
Profit ≈ 100,000 × 0.0082786
≈ 827.86
- Find the spot rate change. (1.27 − 1.25) ÷ 1.25 = 0.016, a rise of 1.6%.
- Find the interest rate gap. 4.5% − 1.2% = 3.3 percentage points.
- Scale the gap by the exchange rate move. 3.3% × 1.016 = 3.3528% a year.
- Compound for the days held. 1.033528 to the power of 90 ÷ 360, minus 1, is about 0.8279%.
- Multiply by the amount. 100,000 × 0.8279% is about 827.86.
How the Holding Period Changes the Profit
Carry is earned day by day, so the longer the trade stays open, the more interest builds up. With the same rates and amount as the example above:
| Days held | Return | Profit |
|---|---|---|
| 30 | 0.2752% | 275.20 |
| 90 | 0.8279% | 827.86 |
| 180 | 1.6626% | 1,662.58 |
| 360 | 3.3528% | 3,352.80 |
At 360 days the return equals the full yearly carry rate. Shorter periods earn slightly less than a straight share of it (0.8279% for a quarter rather than 0.8382%) because the calculator compounds instead of dividing the yearly rate evenly.
How the Exchange Rate Changes the Result
The settle rate scales the interest earned. If the target currency rises, each unit of interest is worth more when converted back. If it falls, the interest is worth less. For the same 90-day trade with a 3.3 point gap on 100,000 and an initial rate of 1.25 (so 1.20 is a 4% fall and 1.30 is a 4% rise):
| Settle rate | Yearly rate | Profit |
|---|---|---|
| 1.20 | 3.168% | 782.76 |
| 1.25 | 3.3% | 814.98 |
| 1.27 | 3.3528% | 827.86 |
| 1.30 | 3.432% | 847.17 |
Note what this does and does not cover. The calculator applies the exchange rate move to the interest earned, not to the amount invested itself. In a real unhedged trade, a 4% fall in the target currency would also cut the value of the whole position by about 4%, which is far larger than three months of carry. Treat the result as the interest side of the trade and judge the currency risk on the principal separately.
Carry Trade Examples
A yen-funded trade. A trader borrows at 0.5% and lends at 5%. The exchange rate moves from 150 to 153 over 180 days, and 50,000 is invested:
Yearly rate = 4.5% × 1.02
= 4.59%
Return = 1.0459^(180 ÷ 360) − 1
≈ 2.2693%
Profit ≈ 1,134.63
Held for a full 360 days at the same rates, the return is exactly 4.59% and the profit is 2,295.
A negative carry. Lending earns 2%, borrowing costs 5%, the exchange rate stays at 1.10 and 20,000 is held for 90 days:
Return = 0.97^(90 ÷ 360) − 1
≈ −0.7586%
Profit ≈ −151.72
The result is negative: the trade pays more interest than it earns, so it loses about 151.72.
Positive Carry vs Negative Carry
| Rates | Called |
|---|---|
| Lending above borrowing | Positive carry |
| Lending below borrowing | Negative carry |
| Lending equals borrowing | No carry |
A positive carry pays the holder to wait. A negative carry charges the holder for every day the position is open, so it only makes sense when the trader expects the exchange rate to move enough to cover the cost.
Risks and What the Result Leaves Out
- Currency risk on the principal. A sharp fall in the target currency can wipe out many months of carry in days. Carry trades tend to unwind quickly when markets turn.
- Leverage. Many carry trades are leveraged. Leverage multiplies both the carry and any exchange rate loss, and it is not modelled here.
- Changing interest rates. The calculator holds both rates fixed. Central banks can change them while the trade is open.
- Costs. Bid and offer spreads, broker swap or rollover charges and taxes are not included.
- Day count. The return is compounded on a 360-day year. Some currencies use 365 days.
Uncovered interest rate parity says that, on average, the high-rate currency should fall by enough to cancel the interest gap. In practice it often has not, which is why the carry trade exists, but the gains have come with occasional large losses. The result is for education and planning and is not financial advice.
Key Terms
- Carry
- The income from holding a position, here the interest rate gap.
- Funding currency
- The low-rate currency that is borrowed.
- Target currency
- The high-rate currency that is bought and lent.
- Rate gap
- The lending rate minus the borrowing rate, in percentage points.
- Spot change
- The percentage move in the exchange rate between opening and settlement.
- Unwind
- Closing a carry trade by selling the target currency and repaying the loan.
How to Use the Carry Trade Calculator
- Enter the two exchange rates. Type the rate when the trade opens (S0), such as 1.2500, and the rate when it settles (S1), such as 1.2700.
- Enter the days to settle. Type the number of days the trade is held, such as 90.
- Enter the interest rates. Type the yearly lending rate, such as 4.5, and the yearly borrowing rate, such as 1.2.
- Enter the amount invested. Type the size of the trade, such as 100,000.
- Read and copy the result. The carry trade profit appears as you type, with the working, the investment return, the spot rate change, the interest rate gap, the yearly carry rate and the end value. Press Copy to copy it, or Clear or Esc to start again.
Example: rates of 150 then 153, 360 days, lending at 5%, borrowing at 0.5% and 50,000 invested. The result is 2,295, a return of 4.59%.
Who Can Use This Calculator?
Frequently Asked Questions (FAQs)
How do you calculate carry trade profit?
Subtract the borrowing rate from the lending rate, multiply the gap by the settle rate divided by the initial rate to get a yearly carry rate, compound it over days ÷ 360 to get the return, then multiply the return by the amount invested.
What is the carry trade profit on 100,000 for 90 days with a 4.5% lending rate and a 1.2% borrowing rate?
About 827.86 when the exchange rate moves from 1.25 to 1.27. The yearly carry rate is 3.3% × 1.016 = 3.3528%, the 90-day return is about 0.8279%, and 100,000 × 0.8279% is about 827.86.
What is a carry trade in simple terms?
It is borrowing money where interest rates are low and lending or investing it where rates are higher, keeping the difference. In foreign exchange it means selling a low-rate currency to buy a high-rate one.
What is the interest rate differential?
It is the lending rate minus the borrowing rate, in percentage points. Lending at 4.5% and borrowing at 1.2% gives a differential of 3.3 points, which is the carry before any exchange rate effect.
What is a negative carry?
A negative carry is a trade where the borrowing rate is higher than the lending rate, so it costs money to hold. Lending at 2% and borrowing at 5% on 20,000 for 90 days loses about 151.72.
How does the exchange rate affect a carry trade?
In this calculator a rise in the settle rate scales the interest earned up and a fall scales it down. In a real unhedged trade the exchange rate also changes the value of the amount invested, which can outweigh the interest.
Why does the calculator use 360 days?
A 360-day year is the money market convention for most major currencies. The return is the yearly carry rate compounded over days ÷ 360, so a 360-day trade earns exactly the yearly rate.
What are the main risks of a carry trade?
The biggest risk is a sharp fall in the high-rate currency, which can erase the interest earned. Leverage, changes in central bank rates and trading costs add to the risk.
Is the Carry Trade Calculator free?
Yes. It is free to use, with no sign-up and no limit on how many times you use it.
Sources
- Wikipedia. Carry (investment).
- WallStreetMojo. Carry Trade.
- Corporate Finance Institute. Uncovered Interest Rate Parity (UIRP).
- Wikipedia. Interest rate parity.
- Wikipedia. Forward premium anomaly.
- Wikipedia. Day count convention.
Try our Carry Trade Calculator to see what an interest rate gap earns over any holding period.