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What is an FX Carry Trade?

A carry trade is one of the oldest and most intuitive strategies in foreign exchange markets. The concept is simple: borrow money in a currency with a low interest rate (e.g., Japanese yen at 0.5%) and invest it in a currency with a high interest rate (e.g., Australian dollar at 4.5%). You earn the interest rate differential (the “carry”) as long as the exchange rate does not move against you by more than the carry you earn. The carry shows up in the FX market through forward points — the difference between the spot rate and the forward rate. A currency with higher interest rates trades at a forward discount (the forward rate is lower than the spot), meaning a long position in that currency earns positive carry. The critical risk metric is the carry-to-vol ratio: annualized carry divided by the implied volatility. A high carry-to-vol ratio means the carry is attractive relative to the risk of adverse spot moves.

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Command

/analyze-fx-carry <currency pair e.g. USDJPY> [tenor e.g. 3M]
Evaluates carry trade opportunities by combining spot rates, forward points, carry term structure, volatility risk, and historical context.

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Workflow

1

Get Spot Rate

Calls fx_spot_price for mid/bid/ask and bid-ask spread.
2

Price Forward at Target Tenor

Calls fx_forward_price to compute annualized carry.
3

Map Full Carry Curve

Calls fx_forward_curve across all tenors to find the optimal tenor.
4

Assess Volatility Risk

Calls fx_vol_surface for ATM vol, risk reversal, and butterfly. Computes carry-to-vol ratio.
5

Historical Context

Calls tscc_historical_pricing_summaries for 1Y daily data to assess trend and range.
6

Synthesize

Presents carry-to-vol ratio, assessment (attractive / moderate / unattractive), and supporting data.

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Output

Lead with carry-to-vol ratio and overall assessment. Follow with spot and forward pricing, carry term structure table, vol surface snapshot, and historical context. See the FX Carry Trade skill for domain knowledge on carry frameworks and risk metrics.