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The calculation of overnight interest in foreign exchange trading

forex traders cashback forex foreign exchange trading, may find themselves in the balance of funds, in addition to changes caused by changes in exchange rates (including spreads, slippage), there rebateforexindonesia be changes in currency Forex rebate for you rates caused by the increase in transaction costs or profits, which getforexrebate what we call highestrebateforex interest To Forexrebateforyou we will talk about overnight interest  What is foreign exchange swap interest? Foreign exchange overnight interest refers to the foreign exchange investors in the position overnight when you need to pay or get the interest just like we store the funds in the bank will produce deposit interest, borrowing from the bank will produce loan interest, foreign exchange overnight interest also has a positive and negative points if the positive overnight interest, investors will get this part of the interest; if the negative overnight interest, investors need to pay a certain amount of money foreign exchange trading The essence of foreign exchange trading is based on the exchange rate changes between two currencies, each currency has its own interest rate, so foreign exchange trading involves two different interest rates at the same time When the interest rate of the currency bought is higher than the interest rate of the currency sold, the investor can get a positive overnight interest, thus increasing profits; if the interest rate of the currency bought is lower than the interest rate of the currency sold, it will generate a negative overnight interest, which leads to The investors transaction costs increase Of course, for day traders, establish and close positions on the same trading day, so there is no need to consider SWAP; while for long term traders, positions are often held for more than a day, then SWAP fees should be considered When is the foreign exchange SWAP charged? Different forex brokers company locations are different, and the time under different time zones shown on the brokers websites are also different, so the brokers time in calculating SWAP varies, but it is actually a point in time Some forex brokers SWAP calculation time is 5:00 p.m. Eastern (New York) time, which translates to 5:00 a.m. Beijing time; some brokers are European However, these are all summer time, and in winter time it is 6:00 am Beijing time, which means that in summer time, any position opened at 5:00 am will be considered as an overnight position and will be subject to SWAP calculation at 5:01 am. positions established until the next day to calculate overnight interest; and positions established at 4:59 a.m. will be calculated at 5:00 overnight interest weekend and holiday overnight interest calculations according to international practice, foreign exchange transactions are usually settled after 2 trading days Monday: 1 day overnight interest Monday trading, Wednesday settlement, Monday positions held until Tuesday, the settlement date is Wednesday to Thursday, so to pay/collect 1 day Interest Tuesday: 1 day overnight interest Tuesday position to Wednesday, settlement day is Thursday to Friday, so 1 day interest is paid/collected Wednesday: 3 day overnight interest Wednesday position to Thursday, settlement day is Friday to next Monday, so 3 day interest is paid/collected Thursday: 1 day overnight interest Thursday position to Friday, settlement day is next Monday to next Tuesday, so 1 day interest is paid/collected Friday: 1 day overnight Friday: 1 day overnight interest Friday positions are held until Monday and the settlement date is Tuesday to Wednesday, so 1 day interest is paid/collected Most banks in the world are closed on Saturday and Sunday, so these two days should not be counted as overnight interest for forex trading positions, but in fact most banks still count interest for these two days For this reason, the forex market will count three days of interest on positions that are overnighted on Wednesday, so on Wednesday overnight positions will be charged three times the overnight interest holidays usually do not have overnight interest, but before the big holidays, overnight interest will be multiplied in general, the transaction involves the currency of the country to which the important holiday will be calculated holiday overnight interest for example, the United States Independence Day on July 4, the United States banks are closed, all positions in the dollar currency pairs on July 1 at 5 p.m. to calculate additional One day of overnight interest How is the foreign exchange overnight interest calculated? On the issue of calculating overnight interest, some brokers offer a direct amount, while others offer an interest rate The base formula for calculating the direct amount: for example, the sell and buy overnight interest quoted for EUR/USD is: 0.52-0.62, then it means: when the investors position is to sell 1 lot of EUR/USD, the trading account will get 0.52 USD; when the investors position is to buy 1 lot of EUR/USD, the trading account will have to pay 0.62 USD The basic formula for calculating interest rates: SWAPs the actual number of lots of orders placed 1 lot of the standard exchange rate price (short and long prices are not the same) the number of interest-bearing days annual interest rate differential / 360 days 1. For a portfolio with USD as the target currency: for example: GBP/USD: assume Is 100000 (1 standard lot) account, buy 2 lots of GBP/USD on Monday, the market price is: 1.2928/1.2940, hold a position overnight to Tuesday, here the British pound is a high-interest currency, the U.S. dollar relative to the British pound interest rate is low for example, the interest rate differential of 0.42% (annual interest rate differential), the customer holding the British pound will earn interest calculated as: 1000002 lots 1.29401 days 0.42% / 360 = $ 3.02, that is, the annual interest average to the days corresponding to the number of lots of account funds buy (sell) price interest-bearing days 2. For the combination of USD as the base currency: for example, USD/JPY: Suppose it is 100000 (1 standard lot) account, Wednesday short selling 1 hand USD/JPY, the market price is 107.44/107.47, overnight to Thursday, the interest differential is - 2.18, then the customer who sells USD needs to pay interest calculated as: 1000001 lots 3 days (-2.18%/360) = -$18.17 (special note: every Thursday, the overnight interest will be three times the weekday, because delivery actually occurs on Monday, 2 days after the weekend) 3. For cross-currency combinations: for example EUR/GBP: assume it is 100000 (1 standard lot) account, buy 5 lots of EUR/GBP on Friday, the market price is 0.6885/0.6890, overnight to the next Monday, the interest difference is -3.71, then buy the euro customers need to pay interest calculation method: 10005 lots of 0.6890x1 day (-3.71%/360) = (£ 0.355) = ($ 0.63) customers If it is long (hold) high interest currency, the open position of the overnight interest will be added to the account within the funds conversely, the relevant overnight interest will be deducted from the funds long and short positions are paying interest in the current foreign exchange market, the basic customers hold long and short positions are paying interest for the following reasons: most of the currencies are at zero or low interest rates, the interest rate differential between currency pairs Very low retail forex brokers charge or pay different interest rates to their different clients Some forex brokers are not transparent with their data and do not even display the applicable interest rates on their official websites and the way overnight interest is calculated is different from broker to broker In addition to charging or paying interest rate differentials, some forex brokers also add administrative fees, which means that even if the interest rate differential is favorable to the client, it may Forex trading is leveraged trading, which means that traders are borrowing the vast majority of the currencies they trade in and often forget that one of the negative consequences of leverage is that it drives up overnight fees because they have to pay interest on all borrowings, not just the interest they charge on a particular trade, but of course, this charge is legal.

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