Swaps/Interest
May 01, 2015 at 14:24
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5 Replies
May 01, 2015 at 14:24
I've never really concerned myself greatly with Swaps between currency pairs beyond my basic understanding that it was the difference between interest rates for the two given currencies in a pair. Also that if you were buying the currency with the higher interest rate you were gaining a positive return and if you were buying the currency with the lower interest rate you were losing.
If my basic understanding of that is incorrect please enlighten me.
But as to my main concern is that, if my above statement holds true, how can a currency pair cause you to lose on the swaps regardless if you are both long or short. Example: GBP/USD, according to MT4, if you are long you lose $0.66 on a standard lot and if you are short you lose $1.76 on a standard lot.
How is this possible?
Thank you
If my basic understanding of that is incorrect please enlighten me.
But as to my main concern is that, if my above statement holds true, how can a currency pair cause you to lose on the swaps regardless if you are both long or short. Example: GBP/USD, according to MT4, if you are long you lose $0.66 on a standard lot and if you are short you lose $1.76 on a standard lot.
How is this possible?
Thank you
Member Since Nov 21, 2011
1718 posts
May 01, 2015 at 14:49
mrshinko posted:
I've never really concerned myself greatly with Swaps between currency pairs beyond my basic understanding that it was the difference between interest rates for the two given currencies in a pair. Also that if you were buying the currency with the higher interest rate you were gaining a positive return and if you were buying the currency with the lower interest rate you were losing.
If my basic understanding of that is incorrect please enlighten me.
This is right!
mrshinko posted:
But as to my main concern is that, if my above statement holds true, how can a currency pair cause you to lose on the swaps regardless if you are both long or short. Example: GBP/USD, according to MT4, if you are long you lose $0.66 on a standard lot and if you are short you lose $1.76 on a standard lot.
How is this possible?
Thank you
That's because greedy broker also takes commissions from swaps.
May 02, 2015 at 09:19
CrazyTrader posted:
This is right!
That's because greedy broker also takes commissions from swaps.
Oh wow, I was unaware brokers took a commission on the swaps as well. Ridiculous.
With the swap commissions in mind, how is that commission actually determined? Does each have broker have an flat 'X' fee on all swaps or is it in a way related to the spread which you pay on that pair?
For example, the GBP/USD example I quoted, swap long: -$.66 / swap short: -$1.76, is from the broker Tallinex on their micro account. Their spread which varies, for example at this moment is 3.2pips.
May 02, 2015 at 09:20
I was also reading on a term some labeled as 'overnight financing rates' which supposedly varied from broker to broker, though it sounds like it is another term for swaps. Could this 'overnight financing rate' be in a sense the spread that the broker is charging on pairs?
Member Since Nov 21, 2011
1718 posts
May 02, 2015 at 09:42
(edited May 02, 2015 at 09:42)
mrshinko posted:
For example, the GBP/USD example I quoted, swap long: -$.66 / swap short: -$1.76, is from the broker Tallinex on their micro account. Their spread which varies, for example at this moment is 3.2pips.
Ok from your exemple on GBPUSD:
If brokers weren't taken commissions from swaps... you would lose only:
$0.11 for long
$1.21 for short
In fact they charge you $0.55 commissions whatever the position you are holding.
(0.11 + 0.55 = $0.66)
(1.21 + 0.55 = $1.76)
May 02, 2015 at 18:20
CrazyTrader posted:
Ok from your exemple on GBPUSD:
If brokers weren't taken commissions from swaps... you would lose only:
$0.11 for long
$1.21 for short
In fact they charge you $0.55 commissions whatever the position you are holding.
(0.11 + 0.55 = $0.66)
(1.21 + 0.55 = $1.76)
I'm taking it that this was figured out by comparing it to the swaps of a broker with no commissions on swaps to determine the baseline?
This still has me confused baffled though. If one were to go long the GBP/USD, with GBP having an interest rate of 0.50% and the USD having an interest rate of <0.25% shouldn't one be gaining money on a long position, given that no commissions were being charged.
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