What it means
Carry is the return you earn from a position simply by holding it - interest, dividends, or rolldown - separate from price appreciation. In FX, it's the interest rate differential between two currencies. In bonds, it's the yield-to-maturity. In commodities, it's the cost of storage.
Why it matters
Carry trades work most of the time and blow up dramatically. Borrowing in low-yielding currency to buy high-yielding currency works great until volatility spikes - then everyone unwinds at once.
How to use it
Carry is a strategy worth pursuing only with explicit risk management. Position size should be inverse to volatility, not constant. The August 2024 yen unwind is a textbook case of why.
Want a worked example or a deeper dive? Ask Rocky how this concept applies to your specific watchlist or trade idea.
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