The Weekend Carry Strategy is a short-term trading approach that seeks to profit from interest rate differentials and reduced market volatility over the weekend in the foreign exchange market. This strategy involves holding positions into the weekend — typically from Friday’s close to Sunday’s open — to capture the positive swap or carry from long positions in high-yielding currencies against low-yielding ones. When executed correctly, it allows traders to earn interest income and directional gains while managing the risks of weekend gaps.

What Is the Carry Trade?

The carry trade involves borrowing in a low-interest-rate currency (the funding currency) and investing in a high-interest-rate currency (the target currency). The trader earns the interest rate differential, or “carry,” which is paid daily. On Wednesdays, triple swaps are paid to account for weekend rollover, but holding over the actual weekend can also be strategically advantageous under certain conditions.

How the Weekend Carry Strategy Works

1. Identify High-Yield and Low-Yield Currency Pairs
   Look for currency pairs with positive interest rate differentials (e.g. AUD/JPY, NZD/CHF, USD/JPY).
2. Analyse Broker Swap Rates
   Confirm that your broker pays a positive swap for holding the desired position over the weekend.
3. Time the Entry on Friday
   Enter the position near the end of the trading week when volatility is lower and carry will be credited.
4. Exit Sunday or Early Monday
   Close the position at the Sunday open or early Monday unless the technical setup justifies a longer hold.
5. Apply Tight Risk Management
   Use stop-loss orders or hedge with correlated assets to guard against political, economic, or geopolitical weekend surprises.

Ideal Currency Pairs for the Strategy

• AUD/JPY: Classic carry trade with higher interest from the RBA
• NZD/JPY: High yield, risk-sensitive
• USD/JPY: Strong carry potential during Fed tightening
• TRY/JPY or MXN/JPY: Higher carry, but with greater risk exposure

Key Conditions for Success

• Stable or Risk-On Market Conditions
  The strategy works best when markets are calm and there’s no expected news over the weekend.
• Positive Swap Environment
  Central banks must have clear policy divergence — e.g. the funding currency (JPY or CHF) at zero/negative rates and the target currency offering yield.
• Low Event Risk Weekends
  Avoid holding into weekends with elections, referendums, G7 meetings, or major geopolitical tensions.

Example: Weekend Carry Trade in USD/JPY

• Fed holds rates at 5.5%, while BoJ remains negative
• Your broker pays +0.85% annualised for long USD/JPY
• Technicals support mild bullish trend with no major data due
• Enter long USD/JPY at Friday close (e.g. 148.00)
• Exit Sunday at market open or Monday morning if no gap risk develops

Tools and Data to Support the Strategy

• Broker Swap Rate Calendars: Check rollover payments for different pairs
• Economic Calendars: Monitor for high-impact weekend risk
• Volatility Indicators: Avoid entry during rising VIX or unexpected volatility
• Technical Analysis: Use RSI, MACD, and trendlines to confirm entry conditions
• News Monitoring: Watch for geopolitical developments before weekend entry

Advantages of the Strategy

• Generates Passive Yield: Earn carry without requiring active trading
• Short Holding Period: Risk exposure is limited to a two-day window
• Combines Interest and Price Movement: Potential to profit from both carry and favourable price gaps
• Ideal for Consistent Income Traders: Useful for supplementing longer-term strategies

Limitations and Considerations

• Weekend Gaps: Price can open significantly higher or lower, triggering unexpected losses
• Thin Liquidity: Gaps and spreads widen at Sunday open
• Carry Compression: If rate differentials narrow, the swap benefit decreases
• Broker Policies Vary: Some brokers reduce or withhold swap payments for short holds

Use Case: Avoiding Weekend Risk in GBP/USD

• Political uncertainty in the UK expected over the weekend
• Despite positive carry, risk of gap down is high
• Strategy: Avoid GBP longs, switch to lower-risk pair like NZD/CHF with calmer outlook

Conclusion

The Weekend Carry Strategy offers a practical, short-duration method for traders to earn passive income through interest rate differentials while limiting exposure to major price swings. When combined with solid macro awareness, technical confirmation, and careful risk management, it can be a reliable addition to a broader forex trading plan.

To master the carry trade, optimise swap strategies, and learn how to integrate them into a risk-adjusted portfolio, enrol in our specialised Trading Courses designed for currency strategists and income-focused traders.