Carry Trade: Overview, Risks, Example

By Lyle Daly – Updated May 30, 2025 at 10:27 PM | Fact-checked by Frank Bass

Key Points

Carry trades involve borrowing at low rates to invest for higher returns, often in different currencies.
Market changes can turn profitable carry trades into losses, necessitating rapid exits.
When using carry trades, investors should understand currency risks and monitor market shifts.

A carry trade is an investment strategy that involves borrowing money at a low interest rate and investing it for a potentially higher return. The term typically refers to currency carry trades made through foreign exchange (forex) markets.

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Two traders looking at stocks on computer screens — Image source: Getty Images.

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A simpler type of carry trade is getting a low-interest loan or line of credit and using it to invest in an asset with a higher return. Some investors try this with a home equity line of credit (HELOC) or a credit card with a 0% APR for an introductory time period (normally by floating bills on the credit card and using the money they save to invest). Either option can work, but your returns are limited by how much you can borrow.

Also, any time you add leverage to your portfolio, you're taking on greater risk. You need to repay the money you borrow, even if the investment you choose ends up losing value.

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About the Author

Lyle Daly is a contributing Motley Fool stock market analyst covering information technology and cryptocurrency. Lyle has been a contributor at the financial services company since 2018. His work has been featured on USA Today, Yahoo Finance, MSN, Fox Business, and Nasdaq. Before joining The Motley Fool, he wrote for financial brands including Intuit.

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