The carry trade calculator above takes a borrowing rate, a lending rate, an entry exchange rate, an exit exchange rate and a holding period, and separates the result into the two pieces that actually drive it: the interest differential earned over the period, and the effect of the exchange rate moving between entry and exit. It then reports the exit rate at which the two exactly cancel, which is the single most useful number on the page.
Arb Digital builds free tools that show what a structure exposes you to rather than what it might pay. Every rate and every exchange rate here is an input. This page publishes no market data of any kind, names no currency pair as attractive, and recommends no trade. It computes the arithmetic of a well-known structure so that the risk in it is visible, and the risk in it is the whole point.
What This Carry Trade Calculator Does
A carry trade borrows in a currency with a low interest rate and invests the proceeds in a currency with a higher one. The difference between the two rates is the carry, and if exchange rates never moved it would accrue steadily and without effort. Exchange rates do move, and the entire risk of the structure sits in that fact.
The calculator models the full round trip. It converts the borrowed amount into the investment currency at the entry rate, accrues interest at the investment rate for the holding period, converts the proceeds back at the exit rate, and subtracts what is owed on the borrowing plus transaction costs. Whatever is left is the profit or loss, and dividing it by the equity actually committed gives the return on that equity.
It then decomposes that result. The carry component is what the position would have earned if the exchange rate had been identical at both ends. The exchange-rate component is the difference between that and what actually happened. Because the two components have opposite signs whenever the higher-yielding currency weakens, seeing them separately is the only honest way to read the outcome.
How to Use It
- Enter both interest rates as annual percentages. Use rates you have obtained yourself; nothing on this page supplies a market rate.
- Check the quote convention. Entering the rate the wrong way round reverses the sign of the exchange-rate contribution entirely, which is the most common error in this arithmetic.
- Set an exit rate deliberately. Try an unchanged rate first to isolate the carry, then move it in both directions to see how quickly the result changes.
- Enter your real leverage. Return on equity scales directly with it, and so does the loss when the exchange rate moves against the position.
- Read the break-even rate. It tells you how much adverse movement the interest differential can absorb before the whole exercise is loss-making.
The Formula: How a Carry Trade Result Is Calculated
Write N for the borrowed notional, rf for the funding rate, ri for the investment rate, t for the holding period in years, S0 and S1 for the entry and exit rates in investment-currency units per funding-currency unit, and k for the round-trip transaction cost as a fraction. Proceeds converted back are N × S0 × (1 + rit) ÷ S1. The amount owed is N × (1 + rft). Profit is the first minus the second minus N × k.
The carry component is what the trade earns at an unchanged rate: N × (ri − rf) × t. The exchange-rate component is the remainder, N × S0 × (1 + rit) × (1 ÷ S1 − 1 ÷ S0). The break-even exit rate is Sbe = S0 × (1 + rit) ÷ ((1 + rft) + k).
Work the defaults. A million units borrowed at 0.5 per cent for a year owes 1,005,000. Converted at 20.0 it becomes 20,000,000 investment-currency units, which at 9 per cent grow to 21,800,000. Converting back at 20.5 gives 1,063,414.63, so the gross profit is 58,414.63 and, after 20 basis points of round-trip cost on the notional, 56,414.63. Against 200,000 of equity at five times leverage that is a 28.21 per cent return on equity.
Decomposed: at an unchanged rate of 20.0 the proceeds would have been 1,090,000, so the carry is 85,000 and the exchange-rate contribution is minus 26,585.37. The break-even exit rate is 20 × 1.09 ÷ 1.007 = 21.6485, which is 8.24 per cent of depreciation in the investment currency. That figure — not the 8.5 percentage-point rate differential — is the actual cushion.
Why the Interest Differential Is Not Free Money
The theoretical answer is uncovered interest parity: if markets priced currencies so that no risk-free profit existed, the high-yielding currency would be expected to depreciate by exactly the interest differential, and the carry trade would earn nothing on average. Empirically that has not held over many periods, which is why the trade exists at all. But the reason it has not held is not that the market has overlooked something. It is that the returns compensate for a particular kind of risk.
That risk has a distinctive shape. Carry returns tend to accumulate slowly and reverse violently: many small positive periods punctuated by rare, large losses, a pattern statisticians describe as negative skewness and traders describe less politely. The Bank for International Settlements' account of the August 2024 carry trade unwind documents exactly this: leveraged positions concentrated in the same trades, a common shock, margin calls forcing simultaneous exits, funding currencies appreciating sharply and investment currencies falling.
Earlier BIS work on evidence of carry trade activity describes the same structure in the banking and foreign-exchange data. The recurring feature is that the losses arrive together, across positions that looked diversified, because the thing that unwinds them is the same thing everywhere: a change in volatility or in rate expectations that makes leverage expensive at once.
How Leverage Changes the Question
Nothing about the exchange rate cares how much leverage a position carries, but everything about survival does. The default example produces a 5.64 per cent return on the notional and a 28.21 per cent return on equity at five times leverage. Run the exchange rate the other way and the same multiplication applies to the loss: a move that costs 5 per cent of notional costs 25 per cent of equity at that leverage, and 50 per cent at ten times.
The practical consequence is that a leveraged carry position can be closed out by a move that would have been survivable unlevered. Margin is called against mark-to-market losses, and a position liquidated at the worst point never gets the chance to earn back the carry it was set up to collect. Our margin trading calculator and margin call calculator cover that mechanic on the equity side, where the same logic applies.
This is why the break-even rate in the grid is expressed as a percentage move as well as a level. A cushion of eight per cent sounds comfortable until it is compared against how far a currency can travel in a week when positioning is crowded, and it is worth noting that the break-even calculation assumes the position is still open at the end. A position closed early by a margin call has a break-even that is far nearer than the arithmetic here suggests.
What This Model Leaves Out
Interest here is simple rather than compounded, and applied on an actual-over-365 basis. Real money-market conventions vary by currency, several use a 360-day year, and rolling a position through short-dated instruments means the rate resets rather than being locked. A floating funding rate that rises during the holding period narrows the differential from the wrong end.
The model assumes both rates are available to you at the sizes entered, which for a retail participant is rarely true: the borrowing spread and the deposit spread are both wider than the reference rates that get quoted. It assumes no counterparty or country risk, no capital controls, and no gap between a quoted rate and one you could actually deal on. It also assumes a single exit at a chosen rate rather than a path, so it cannot show a position that was liquidated on the way.
Forward exchange rates are the other omission worth naming. A forward contract prices the interest differential in directly, which is what covered interest parity describes, so hedging the currency exposure with a forward removes the risk and, to a close approximation, the carry with it. Our forward exchange rate calculator shows that relationship, and it is the clearest demonstration that the carry is payment for the unhedged exposure.
Reading the Two Components Apart
The most useful discipline this page enforces is refusing to report a single number. A carry trade that made money because the investment currency appreciated made money for a reason that has nothing to do with the interest differential, and treating that as evidence the carry works is a category error. Equally, a position that lost money on the exchange rate but earned its full carry is behaving exactly as designed.
Set the exit rate equal to the entry rate to see the carry alone; that is the trade's design case. Then set it to the break-even value to confirm the arithmetic cancels. Then move it further to see the loss. For the underlying rate arithmetic, our interest rate calculator and cross exchange rate calculator handle the components separately, and the annualized return calculator puts a holding-period result onto a per-year basis for comparison.
Arb Digital builds free tools like this one because useful pages earn attention. If you want tools, calculators or content built for your own audience, we can help.
Browse All Free Tools Talk to Arb DigitalCommon Mistakes to Avoid
- Inverting the quote convention — it reverses the sign of the entire exchange-rate contribution and turns a loss into an apparent profit.
- Treating the rate differential as the return — the differential is the return only if the exchange rate does not move, which is the one thing it will not do.
- Ignoring the funding spread — the rate you can borrow at is not the reference rate that gets published, and the gap comes straight out of the carry.
- Assuming a position survives to the horizon — leverage plus a mark-to-market loss can close a trade long before the carry has been collected.
- Reading a run of positive periods as low risk — carry returns are known for long quiet stretches ending in sharp reversals.
Related Free Tools From Arb Digital
Currency and rate arithmetic usually needs more than one relationship. The forward exchange rate calculator shows how an interest differential is priced into a forward, the cross exchange rate calculator derives a third pair from two quotes, and the interest rate calculator handles the accrual on either leg.
On the leverage side, the margin trading calculator and the margin call calculator show how quickly a levered position runs out of room, and the annualized return calculator converts a holding-period result into a comparable annual figure.
Frequently Asked Questions
It is borrowing in a currency with a low interest rate and investing the proceeds in a currency with a higher one, keeping the difference between the two rates. The position is exposed to the exchange rate between them for the whole holding period, and that exposure is the source of both the return and the risk.
No. It is compensation for bearing exchange-rate risk. Theory says the high-yielding currency should be expected to depreciate by the differential; in practice returns have often been positive for long stretches and then reversed sharply. Sharp episodes have wiped out accumulated carry in a matter of days.
The exit rate at which the exchange-rate loss exactly cancels the interest earned, net of costs. The calculator reports it as a level and as a percentage move. Because the accrued interest is converted at the exit rate too, the break-even move is slightly smaller than the raw rate differential.
It multiplies both the gain and the loss on the equity committed, without changing anything about the currency itself. A move costing 5 per cent of the notional costs 25 per cent of equity at five times leverage. It also raises the chance of being closed out by a margin call before the carry has been collected.
Because a forward exchange rate already prices in the interest differential, which is what covered interest parity describes. Locking the exit rate with a forward removes the exchange-rate risk and, to a close approximation, removes the expected profit along with it. The carry is payment for leaving the exposure open.
No. Every rate, spot level, cost and leverage figure is one you type in. The page publishes no market data at all and holds no view on any currency, pair or rate. It computes the arithmetic of a structure from your assumptions and nothing else.
Simple interest on an actual-over-365 basis for both legs. Real money-market conventions differ by currency, and several use a 360-day year, which changes the accrual for the same nominal rate. Positions rolled through short-dated instruments also reset at prevailing rates rather than locking the entry rate.
This tool is provided for educational and estimating use only. It is not investment advice and does not recommend any currency, pair, trade or strategy. Currency positions carry substantial risk, leverage magnifies losses, and anyone considering one should take advice from a qualified financial adviser.
