Although very popular in the Forex market, the Carry Trade is simply a strategy that benefits from the differential between interest rates. A trader would take a long position on a higher interest rate asset while at the same time taking a short position on a lower interest rate asset—or even on a negative interest rate asset.
Putting in another way, a trader is funding the higher interest rate long position with the lower interest rate short position, yielding a positive return from the differential between rates.
The most popular Carry Trades in the Forex market involve buying currencies like the Australian and the New Zealand dollars against the Japanese Yen due to its negative interest rates.
Example
