that fat positive swap isn't free money

[Shadow Trader]

A high swap on a pair is usually the market telling you something, not handing out a gift.

When a currency pays a big interest rate, it's often because inflation is high, confidence is low, or the central bank is propping something up. The carry looks lovely on a spreadsheet. Hold long, collect a daily credit. But the currency can lose far more than the interest in one devaluation. The Turkish lira and Argentine peso are textbook cases of high rates failing to offset sharp depreciation.

A sanity check with example numbers: if a currency pays 20 percent a year more than the dollar but drops 25 percent, the carry has been wiped out and then some. Carry trades get described as picking up pennies in front of a steamroller for this reason.

For scalpers holding minutes, this matters less. It matters if trades get left overnight when swap is charged, and brokers can change swap rates with little warning.

Where is your line, do you ever hold a position mainly for the swap, and what is the highest-yielding pair you would sit in?