Carry Trade Calculator
From principal, rates and FX change, compute the net return of a carry trade: borrow low, invest high, minus currency movement.
Input Data
Results
At a glance:A carry trade borrows in a low-rate currency to invest in a higher-yield one, earning the rate gap. net return = principal x (invest rate - borrow rate) + principal x FX change %. Example: borrow 1%, invest 5% (4% gap = HK$4,000 on 100k), but the invested currency falls 3% (-HK$3,000) → net HK$1,000 (1%). FX can add to or erase the carry. WARNING: FX risk is the main danger; a sharp adverse move can cause a loss bigger than the interest gain. In Hong Kong, HKD-USD is effectively pegged via the Linked Exchange Rate (≈7.75-7.85), so HKD-USD carry is almost FX-free; HKD vs other currencies still carries FX risk. Education, not advice.
Formula
Net return = principal x [(invest rate - borrow rate) + FX change %] / 100.
Carry (interest gap) = invest rate - borrow rate; FX change = appreciation/depreciation of the invested currency.
$$$Net = P \\times \\dfrac{(r_{invest}-r_{borrow})+\\Delta_{fx}}{100}$$$$$$P$ $r_{invest}$ $r_{borrow}$ / $\\Delta_{fx}$ (%)$$$$(carry)$r_{invest}-r_{borrow}$$$$$$100{,}000 \\times \\dfrac{(5-1)+0}{100}=4{,}000$$$How to Use
- Enter the principal.
- Enter the invest (higher) and borrow (lower) rates.
- Enter the expected FX change %.
- View the net return.
FAQ
How exactly is the net return calculated?
Net return = principal x (invest rate - borrow rate) + principal x FX change %. The first term is the interest differential (carry) you earn; the second is the currency gain/loss. In the example (100k, 1% borrow, 5% invest, -3% FX): interest = 100k x 4% = 4,000; FX = 100k x -3% = -3,000; net = 1,000 (1%). A positive FX move would add on top of the carry.
Why is FX the main risk?
The interest gap is small and stable; currency moves can be large and sudden. A few per cent adverse FX move can erase the whole carry or turn it negative — especially in a risk-off event where high-yield currencies often fall most. The trade 'pays a small coupon but risks a large capital loss'; size positions for that asymmetry.
How does this relate to Hong Kong and HKD?
Hong Kong uses the Linked Exchange Rate System: the HKMA keeps USD/HKD within about 7.75-7.85 by virtue of the Currency Board. So a carry between HKD and USD is almost FX-risk-free (only the tiny band), and the rate gap is essentially the US-HK short-end difference. But HKD vs JPY, AUD, RMB or emerging-market currencies still carries real FX risk. Locally, many HK investors do USD/HKD deposits carry; cross-currency carry needs FX hedging awareness.
Is a higher carry always better?
Not necessarily. A very wide rate gap usually signals a currency the market expects to depreciate (the gap compensates for the FX risk). Chasing the highest carry without FX hedging can be the classic 'picking up pennies in front of a steamroller'. Judge the carry together with expected volatility and your hedge.
How do I control carry-trade risk?
Set position size for the worst-case FX move, use stop-losses or FX hedges (forwards/options), diversify across currencies, and avoid over-leverage. In HK, watch the HKMA's Convertibility Undertakings and the strong/weak sides of the band for USD/HKD. Educate yourself via the HKMA and IFEC before trading; this tool estimates only, not advice.
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References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.