Carry Trades and Positive SWAP

The larger the interest rate differential is, the larger the effect from rollovers. Meanwhile, the narrower the interest rate differential is, the smaller the impact from rollovers. The net interest difference is known as the carry, while traders who are taking advantage of this are known as carry traders. Information on interest rate levels of the major currencies can be found on most financial-market websites. Talking about interest rate, for instance, a long position in the AUD/USD currency pair have a benchmark interest rate of 2.5% for the Australian Dollar, as well as a corresponding 0.250% for the U.S. dollar. This usually translates into a favorable SWAP for you, because you took a long position into a high yielding currency while being short on the lower yielding one. As a result, you will be credited in the form of a positive SWAP. This is basically what a standard SWAP operation consists of. Positive carry results when you receive more in interest than you are required to pay, and is directly added to your account and this is exactly what some investors try to exploit via carry trades.