What the trade actually is
Borrow a currency with a low policy rate, hold one with a high policy rate, and collect the difference as swap. The position needs no view on direction — it earns simply by existing, which is why it automates so cleanly. A scheduler that rolls positions and reconciles swap credits can run it with almost no supervision.
Why it pays at all
The textbook answer is that uncovered interest parity should erase the gap and empirically does not. The better answer is that carry is compensation for holding a risk nobody wants: the high-yield currency tends to fall sharply and suddenly, usually when everything else is also falling. You are being paid a premium for accepting correlated tail risk.
What eats it
Carry returns are famously negatively skewed — long stretches of small gains punctuated by drawdowns that erase years. Leverage, which makes the small gains meaningful, is exactly what makes the drawdown terminal. The automation problem is therefore not the entry; it is the exit, and the exit is needed at the moment spreads widen and liquidity thins.
What automation genuinely buys
Not the edge — the discipline. A machine sized to a volatility target and hard-stopped at a drawdown limit will de-risk on the day a human is reading the news and hoping. That is the whole contribution, and it is a large one, but it is risk management, not alpha.