Carry Trade Calculator — Forex Interest Rate Differential

Enter your position size in USD — this is the total notional value of your forex trade, not your margin. For a standard lot, this is $100,000. For a mini lot, $10,000.

Set the long currency interest rate — the central bank rate for the currency you are buying. For a USD/JPY long trade, this is the US Federal Reserve rate (e.g. 5.25%). Set the short currency interest rate — the rate for the currency you are selling. For USD/JPY, this is the Bank of Japan rate (e.g. 0.10%).

Enter your leverage (e.g. 10 for 10:1). The calculator uses this to compute your required margin and amplified return on margin percentage. Click Calculate Carry to see your full income breakdown and effective return on deployed capital.

A green badge indicates positive carry — you earn the differential. A red badge means negative carry — you pay it. Always confirm actual swap rates with your broker, as they include their own markup on top of the central bank differential.

The carry trade calculator uses the following formulas:

1. Rate Differential = Long Currency Rate − Short Currency Rate
   (e.g. 5.25% − 0.10% = 5.15%)
2. Annual Carry (USD) = Position Size × Rate Differential ÷ 100
   (e.g. $100,000 × 5.15 ÷ 100 = $5,150/year)
3. Monthly Carry = Annual Carry ÷ 12
4. Weekly Carry = Annual Carry ÷ 52
5. Daily Carry = Annual Carry ÷ 365
6. Required Margin = Position Size ÷ Leverage
   (e.g. $100,000 ÷ 10 = $10,000)
7. Annual Return on Margin % = Annual Carry ÷ Required Margin × 100
   (e.g. $5,150 ÷ $10,000 × 100 = 51.5%)

The model assumes a simplified linear relationship between the rate differential and carry income. Real broker swap rates vary: they embed a markup (typically 0.25–1.0%) and use interbank rates rather than central bank policy rates directly.

Example 1 — Classic USD/JPY Carry Trade

• Position Size: $100,000 (1 standard lot)
• Long (USD): 5.25% | Short (JPY): 0.10% | Leverage: 10:1
• Rate Differential: 5.15%
• Annual Carry: $5,150
• Monthly: $429.17 | Daily: $14.11
• Required Margin: $10,000
• Return on Margin: 51.5% per year

USD/JPY has been one of the most popular carry trade pairs for decades. With US rates significantly above Japanese rates, traders collect over $14/day per standard lot. With 10:1 leverage, that translates to a theoretical 51.5% annual return on the margin deployed — assuming the exchange rate stays stable. The risk, of course, is a sudden JPY appreciation that wipes out the carry income with exchange rate losses.

Example 2 — AUD/CHF Carry Trade

• Position Size: $50,000 (mini lots)
• Long (AUD): 4.35% | Short (CHF): 1.50% | Leverage: 5:1
• Rate Differential: 2.85%
• Annual Carry: $1,425
• Monthly: $118.75 | Daily: $3.90
• Required Margin: $10,000
• Return on Margin: 14.25% per year

A lower differential but also lower leverage, making this a more conservative carry position. The Swiss franc has historically been a funding currency (low rates), while AUD benefits from commodity-driven interest rates.

Why Leverage Matters for Carry Returns

The carry income itself — $5,150/year per $100,000 notional — looks modest at 5.15% on the full position. But traders only put up the margin, not the full notional. At 10:1 leverage, that margin is $10,000, turning 5.15% into a 51.5% theoretical return on capital deployed. This is why carry trades are popular even at modest rate differentials: leverage amplifies the income significantly. However, the same leverage amplifies losses if the exchange rate moves against you.

The Carry Trade Unwind Risk

The greatest danger in carry trading is a sudden carry unwind. When risk sentiment deteriorates — during a financial crisis, unexpected central bank moves, or geopolitical shocks — carry traders rush to exit simultaneously. This creates a self-reinforcing cycle: selling the high-yield currency drives it lower, which causes more margin calls, which forces more selling. The August 2024 JPY carry unwind saw USD/JPY drop over 10 big figures in days, wiping out months of accumulated carry income for leveraged traders.