I read about institution Carry trades all the time. Buy a currency with higher interest, sell one with lower interest. Eg. Long GBP/USD. How do they hedge their position?? The position might drop couple hundred pips, making the profit from interest useless. Since interest is already reflected in the futures/options...how else can they hedge? Arbitrage i understand....its risk free. Quant funds i understand...taking on some risk to trade a statistically valid strategy (some dun work out though, like LTCM). Carry is a mystery to me, and almost no info out there on the net.