The classic version borrows Japanese yen at near-zero rates and buys higher-yielding assets elsewhere. The trade earns the interest differential every day it stays open, which makes it look like a steady income stream.
The risk is entirely in the exchange rate. A move of a few per cent in the funding currency can erase a year of accumulated carry, and because the positions are usually leveraged, the erasure happens quickly.
Carry unwinds are violently reflexive. When the yen strengthens, positions are closed by buying yen, which strengthens it further, as the world saw in August 2024 when an unwind moved global equity indices far more than the underlying rate change justified.