Carry Trade Roars Back to Levels Not Seen in Years, Goldman Says
The currency carry trade is staging a major comeback after its 2024 blowup, according to Goldman Sachs. Here's what traders need to know.
The carry trade is back, and Goldman Sachs says it's bigger than it's been in years. If you forgot what that means, here's your reminder: traders borrow in low-interest-rate currencies and park that cash in higher-yielding ones, pocketing the difference. Simple in theory, brutal when it unwinds.
And unwind it did — spectacularly — in 2024. That blowup sent shockwaves through global markets, torching leveraged positions and catching a lot of traders flat-footed. The Japanese yen was at the center of the chaos, as a surprise rate hike from the Bank of Japan forced a massive, rapid unwind of yen-funded carry positions.
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Now Goldman is flagging that the trade has not only recovered but surged back to levels that dwarf recent history. That's a flashing yellow light. When carry trades get this crowded, the risk of another violent unwind climbs with every new entrant. The bigger the buildup, the nastier the potential snapback.
For retail traders, the takeaway is straightforward: the carry trade is a crowded room with one narrow exit. The returns can look juicy right up until the moment everyone sprints for the door at once. Volatility spikes, correlations break down, and stop-losses get blown through before you can react. Position sizing and awareness of your FX exposure matter more than ever right now.
Whether this comeback runs further or sets up the next blowup is the trillion-dollar question. Goldman's data suggests the trade is thriving — but history says that's exactly when you should be watching your back. Continue reading at MarketWatch.com
