The classic carry trade borrows in a low-yield currency (historically JPY or CHF) and invests in a high-yield currency (historically AUD, NZD, TRY, or ZAR). The difference in interest rates is paid to the trader daily as positive swap. In stable markets, a carry trade can produce steady income even without price movement.
The risk is unwind: when global volatility spikes or the rate differential narrows, carry trades tend to collapse simultaneously as traders exit. The 2008 crisis and the 2020 COVID shock are textbook examples — years of accumulated carry profit wiped out in weeks by an aggressive reversal.