Mastering Cross Currency Carry Trade on Secured Finance

Mastering Cross Currency Carry Trade on Secured Finance

Mastering Cross Currency Carry Trade on Secured Finance

Mastering Cross Currency Carry Trade on Secured Finance

October 15, 2023


Welcome to Secured Finance’s Bond Trading Strategies series, in conjunction with our Test Pilot V3 Training Program. As we advance towards our mainnet launch, we’re eager to share a series of potent trading strategies, starting with Carry Trade. Renowned in traditional finance, Carry Trade now paves its way into digital assets on our platform, offering you fresh avenues to potentially enhance your returns.

What is Carry Trade?

Carry Trade is a financial strategy where traders capitalize on the differential in interest rates between two assets. It involves borrowing an asset with a lower interest rate and lending out another with a higher rate. The aim is to profit from the ‘carry’ or spread between these rates. This strategy is particularly appealing if you’re also bullish on the higher-yield asset’s price, anticipating its value increase.

Understanding Carry Trade

Consider two assets: Asset A, with a borrowing rate of 2%, and Asset B, offering a lending rate of 5%. A trader can deposit collateral, borrow Asset A, exchange it for Asset B, and lend out Asset B. The resulting will be a 3% (5%-2%) spread of the trader’s potential profit, minus any transaction costs.

If you have had any experience with currency margin trading, you may know that the typical ‘Carry Trade’ was Long in AUDJPY. The strategy was to invest in the high interest rate AUD while funded by the low interest rate JPY, so that you could enjoy the profit from the difference in interest rates while taking the profit from the rise in the Spot.

Carry Trade in Action on Secured Finance

Here’s how the carry trade strategy could play out:

  1. Deposit Collateral: You start with depositing $1,000 worth of WBTC as collateral, allowing you to borrow up to $800 with the max LTV at 80%.

  2. Borrow Low: You choose to borrow USDC, which has a 5% fixed annual interest rate — an asset that comes with a lower yield and you borrow conservatively at $700 in USDC to ensure a safer buffer.

  3. Swap for High Yield: You choose to swap the borrowed USDC for WFIL — an asset that promises a higher lending rate. With WFIL priced at $4, you swapped your 700 USDC, giving you 175 WFIL.

  4. Lend High: You lend out the 175 WFIL at a lucrative 18% annual interest rate. After a year, this lending yields 31.5 WFIL.

  5. Profit from the Spread: The 31.5WFIL, when converted back to USDC at the swap rate, translates to 126 USDC in interest income. Subtract the 5% borrowing cost of 35 USDC from your USDC loan, and your net profit is 91 USDC or 13% (18%-5%) before fees. Your earnings are the interest accrued from lending WFIL minus the borrowing cost of USDC if the WFIL price remains the same.

Pros and Cons of Carry Trade:


  • Profit from the Spread: Enjoy the fixed-rate spread between lower borrowing and higher lending rates on Secured Finance.

  • Risk Compensation: The differential interest rate acts as a buffer, potentially mitigating losses if the higher-yield asset’s value drops, and enhancing gains if you’re bullish on the higher-yield asset.


  • Market Price Risk: A decline in the value of the collateral asset could adversely affect to your LTV ratio, which might trigger the liquidation.

  • Swap Risk: When it’s time for you to repay the loan, you will have to swap the higher-yield asset back to the lower-yield asset. If the higher-yield asset’s value has appreciated, you benefit from paying back less than what you earned. However, if it’s depreciated, you’ll need more of the higher-yield asset to cover the lower-yield asset repayment, which could eat into your profits or even lead to a loss.

Carry trade strategies offer the chance to profit from interest rate disparities but come with inherent market risks. Traders should be prepared to manage these risks, employing conservative LTV ratios and staying responsive to market dynamics that influence both collateral and traded assets.


The strategies discussed herein are intended for educational purposes and are not to be construed as financial advice. While you can practice risk-free on our testnet, real stakes apply on the mainnet. Fixed rates on Secured Finance remove interest rate risk, yet market price risks remain. Always conduct comprehensive due diligence.


This is just the beginning of our strategies series. Carry trade is a robust technique that can complement your trading toolkit on Secured Finance. Stay tuned for our next article, which will delve into more intricate trading mechanisms. Watch this space, and let’s continue to explore the dynamic world of decentralized finance together!