What it means
Every FX pair has a positive carry side and a negative carry side, determined by which currency has the higher interest rate. Long AUD/JPY (4% AUD vs -0.1% JPY) = carry-positive long. Short AUD/JPY = carry-negative short. The carry direction changes when central banks shift policy — the same pair can flip between regimes over a few quarters.
Why it matters
For position traders and carry strategies, carry direction is a return source independent of price direction. Even a flat directional view can earn 4-8% per year on carry-positive positions held with leverage. For active traders, carry direction matters less day-to-day but accumulates on positions held overnight or longer.
How to use it
Check the swap table before entering a multi-day position — going long the carry-negative side guarantees a daily cash leak before any FX move. For carry strategies, build a basket of carry-positive longs across multiple pairs to diversify away from any single-pair vol.
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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