# Carry Trade

*Markets & Instruments — Finicade finance glossary*

A carry trade borrows in a low-interest currency and invests in a high-interest one, pocketing the rate difference as long as the exchange rate cooperates. Interest rate parity says this shouldn't work; empirically it works for years and then unwinds violently in days. The pattern — small steady gains, occasional catastrophic loss — is the canonical example of a strategy whose average return hides a fat left tail.

**Also known as:** FX carry, yen carry trade

**Related terms:** [Interest Rate Parity](https://finicade.com/glossary/interest-rate-parity), [Currency Pair](https://finicade.com/glossary/currency-pair), [Leverage](https://finicade.com/glossary/leverage), [Fat Tails](https://finicade.com/glossary/fat-tails), [Exchange Rate](https://finicade.com/glossary/exchange-rate)

Source: https://finicade.com/glossary/carry-trade