The carry trade is a popular strategy used by forex traders, investment funds, and banks. This strategy is responsible for the flow of investments from one currency to another. This strategy takes advantage of the difference in interest rates between the long currency, with high interest rates, and a short currency.
When you receive an interest payment on a currency position, that occurs every business day at 5 pm, Eastern Standard Time, the funds roll over, and is known as a positive carry. It happens when you take a long position, for example, the AUD/JPY pair. The Australian dollar has a higher interest rate (4.25%) and the yen has a low interest rate (0.25%).
So, the difference is a positive carry, which is 4.0%. This percent may seem like a small amount, but can yield great profits if you leverage your trades. The next advantage is the market appreciation, which benefits you besides the interest you earn, as the Aussie appreciates against the yen, and the AUD/JPY pair makes an upward move.