Carry Trade Calculator

Estimate the profit or loss from borrowing in a low-rate currency to invest in a high-rate one, combining the interest rate differential with an expected exchange-rate move.

Quick Facts

Formula
Return ~= (Invest rate - Funding rate) x time + FX change
The rate differential is annualized and scaled to the holding period; the FX change applies once, over the full period.
Source of profit
Interest rate gap between two currencies
Carry trades profit when the higher-yield currency does not depreciate enough to offset the rate gap - never a guaranteed outcome.

Your Results

Calculated
Interest rate differential
-
Investment rate minus funding rate, annualized
Expected total return
-
Carry + FX change, unlevered, over the holding period
Estimated profit / loss
-
Notional x leverage x total return
Return on margin
-
P&L as a % of notional posted

Ready

Enter both interest rates, an FX-change assumption, holding period, and leverage, then press Calculate.

How the Carry Trade Calculator works

A currency carry trade borrows in a currency with a low interest rate (the funding currency) and invests the proceeds in a currency with a higher interest rate (the investment currency). The trade profits from the interest rate differential as long as the investment currency does not weaken against the funding currency by more than that differential over the holding period. This calculator adds the interest income to an expected exchange-rate move to estimate the return.

The formula

For a funding currency with annual interest rate rf and an investment currency with annual interest rate ri, held for t years (holding period in days divided by 365), the unlevered return over the holding period is approximately:

Return ~= (ri - rf) x t + FX change

where FX change is the expected percentage move in the exchange rate of the investment currency against the funding currency over the same holding period (positive if the investment currency appreciates, negative if it depreciates). Multiplying that return by the notional position size, and then by leverage, converts the percentage into a dollar profit or loss.

Worked example

Take a $100,000 position funded in a currency paying 0.5% annually and invested in a currency paying 5.25% annually, held for 90 days (about 0.247 years) with no leverage. The interest rate differential is 4.75% annualized, which scales to roughly 4.75% x 0.247 = 1.17% over 90 days. If the investment currency is expected to depreciate 2% against the funding currency over that period, the total expected return is 1.17% - 2% = -0.83%, or about -$830 on the $100,000 notional - a net loss despite the positive rate differential.

What drives carry trade profit and loss

  • Interest rate differential: a wider gap between the two currencies' rates produces more carry income per year, but the benefit only accrues over the time the position is actually held.
  • Exchange rate risk: the FX component applies in full regardless of holding period, so a single adverse currency move can erase several years of accumulated carry income.
  • Leverage: leverage scales both the interest differential and the FX exposure together, which is why highly leveraged carry positions can lose a large share of posted margin from a comparatively small currency move.

Assumptions and limitations

The calculator uses simple, non-compounded interest scaled linearly by an actual/365 day-count convention, not daily compounding. It ignores bid-ask spreads, broker rollover or swap fees, margin interest, and taxes, all of which reduce a real trade's return. The exchange-rate input is a single assumption you supply, not a forecast the calculator produces - actual currency moves are driven by shifting risk sentiment and interest rate expectations and can be far larger than the interest differential being captured. This tool performs computation only and is not personalized investment or trading advice; leveraged foreign-exchange trading carries a substantial risk of loss.

Frequently Asked Questions

How is carry trade return calculated?
The calculator adds two components: the interest rate differential (the investment currency's rate minus the funding currency's rate, annualized and scaled to the holding period) and the expected percentage change in the exchange rate over that period. Multiplying the sum by the notional position size, adjusted for leverage, gives the estimated profit or loss.
What is the interest rate differential in a carry trade?
It is the gap between the interest rate earned on the currency you invest in and the rate paid on the currency you borrowed to fund the trade. Borrowing in a currency paying 0.5% and investing in one paying 5.25% earns a 4.75% annualized differential before any exchange-rate movement.
Why can a carry trade lose money even with a positive rate differential?
Because the position is also exposed to the exchange rate. If the funding currency strengthens, or the investment currency weakens, by more than the interest earned during the holding period, the currency loss can exceed the carry income and produce a net loss. This is the main risk in an uncovered carry trade.
Does leverage change the risk of a carry trade?
Leverage multiplies both the potential profit and the potential loss without changing the underlying interest rate differential or exchange-rate move. A 5x leveraged position turns a 1% adverse currency move into roughly a 5% loss on the capital posted, which is why carry trades are typically sized conservatively relative to available margin.

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