Overnight Carry on Major Pairs
Positive interest-rate differentials pay you to hold the higher-yielding currency overnight. The rollover credit is a structural, non-directional edge that compounds quietly — as long as the funding pair does not trend violently against you. You are harvesting the world's cost of money, not predicting it.
Setup & Rules
Trade only pairs with a durable, central-bank-anchored rate spread of 300bps or more. Confirm the carry is positive at your broker's specific rollover rates — quoted swaps differ from the headline policy spread. Avoid pairs where the funding currency is under active intervention risk.
Entry
Scale in on pullbacks toward the 50-day moving average while the higher-yielder is in a neutral-to-up regime. Never chase a parabolic move up — the carry is patient money; your entry should be too.
Exit
There is no profit target — carry is a hold. Exit only on regime change: a central-bank pivot that compresses the spread, or a weekly close below the 200-day MA signalling a risk-off unwind of the funding trade.
Risk Management
Size for the tail, not the average. Carry trades 'go up the stairs and down the elevator': months of smooth accrual, then a 3–5% gap on a risk-off day. Cap single-pair exposure at 1.5% account-risk-at-stop and keep aggregate carry beta under 4%.
Portfolio Management
This is an income sleeve, not a core. It correlates with global risk appetite, so it is not a diversifier against equities — pair it with an explicit hedge (see the Protective Collar) when your book is already long risk.
Evidence
2009–2024 backtest on AUD/JPY: 58% of months positive, average +0.7R, worst month −4.1R (Aug 2015, CNH devaluation). Sharpe ~0.9 gross of the tail, materially lower net of it — which is the whole point of the risk rules.
Flywheel Automation
Runs on OANDA via the carry-accrual module. Heartbeat checks the rollover credit nightly and flattens on a configurable spread-compression trigger. Cost of downtime is low (position, not signal) but a missed risk-off exit is expensive — failover is mandatory.