fx-carry-trade

To evaluate an FX carry trade, combine spot rates, forward pricing across tenors, and interest-rate differentials with volatility-surface risk metrics. This process calculates annualized carry and carry-to-vol ratios to produce a risk-adjusted recommendation for your trade direction and tenor.

A risk-adjusted carry-to-vol ratio compares the annualized carry of an FX trade against its ATM implied volatility. This metric estimates the attractiveness of the trade by quantifying how much yield you earn per unit of expected volatility risk.

You can select the best tenor by mapping the full forward curve to identify the maturity where the carry profile is most favorable. Comparing forward pricing across tenors highlights the specific term that maximizes your annualized carry relative to risk.

Implied volatility skew via risk reversals and tail risk via butterflies flag short-volatility risks in your FX carry trade. These volatility surface metrics contextualize potential downside deviations, helping you prioritize trades with favorable carry-to-vol profiles while avoiding dangerous exposures.

Yes, 1Y historical pricing summaries are needed to ground your FX carry trade analysis. Historical spot context shows where the current spot rate sits within its recent range, ensuring your forward curve and volatility surface assessments reflect realistic market conditions.

Calculating annualized carry and risk-adjusted returns requires fx_spot_price, fx_forward_price or fx_forward_curve, fx_vol_surface, tscc_historical_pricing_summaries, and interest_rate_curve. Tool-driven retrieval of these inputs enables the computation of your carry-to-vol outputs and final trade recommendation.