You pay interest on the currency position you SELL and collect interest on the currency position you BUY.

What makes the carry trade special in the spot forex market is that interest payments happen every trading day based on your position.

Technically, all positions are closed at the end of the day in the spot forex market. You just don’t see it happen if you hold a position to the next day.

Brokers close and reopen your position, and then they debit/credit you the overnight interest rate differential between the two currencies.

This is the cost of “carrying” (also known as “rolling over“) a position to the next day.

The amount of leverage available from forex brokers has made the carry trade very popular in the forex market.

Most forex trading is margin-based, meaning you only have to put up a small amount of the position and your broker will put up the rest. Many brokers ask as little as 1% or 2% of a position.