A carry-trade is short a low-yielding currency, so unwinding it means buying that currency back. When many participants do so simultaneously, the funding currency spikes, which forces more stop-outs, which forces more buying. Moves that took a year to build can reverse in days.
Triggers vary: a volatility shock, an unexpected rate rise in the funding country, or a sharp equity drawdown. In August 2024 a Bank of Japan rate increase alongside weak US data produced a violent unwind of yen-funded positions. See yen-carry-unwind-2024.
Example: a trader earning JPY 700 a night on AUD/JPY at 104.00 sees the cross fall to 94.00 in nine sessions. The JPY 1,000,000 loss per standard-lot equals about four years of accumulated carry.
Related: carry-trade, funding-currency