Carry Trade

Collecting carry means holding an instrument that pays interest and collecting the interest payments. (That is, the person holds or carries the instrument receives the interest).

The carry trade then typically means buying and holding a instrument that pays interest. Often, this implies buying the instruments with the highest carry (or interest) and sometimes shorting instruments that dont pay much interest. In the context of foreign exchange it means buying the currencies that pay a high rate and selling short the currencies that pay low interest rates.