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Old 19th-February-2006, 18:23
OldNewbie OldNewbie is offline
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Default Interest Rate Charges

Could someone please explain the costs involved when holding a position for several days. I'm mostly interested in the EUR/USD [selling the dollar], but I don't wish to trade too often.
What rates are used to determine the overnight carry charges and how would I calculate my cost over a two or three week holding period?
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Old 23rd-February-2006, 10:35
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Steve Pickering Steve Pickering is offline
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The costs associated with holding a position for several days are determined by the short term interest rates of the currencies involved in the trade. This 'cost of carry' can mean that interest is paid to you or taken from you, depending on which currencies have the higher interest rate.

This cost can be built into a new rate for the new business day (represented in points), can be credited or debited to your account along with the previous days profit or loss (where the broker closes and reopens the trade much like a futures contract), or can simply appear as a cost on your statement.

(The formula for this has been previously posted, but here it is again)

The official (ACI) method of calculating this is as follows:

"pips = (spot-(((1+quoted currency interest rate)x days/days basis x 100)/((1+base currency interest rate x days)/days basis x100))) x spot)) x -10000

For example, EUR/USD spot is 1.21, the USD interest rate is 4.5% and the EUR interest rate is 2.5%. There is one day to the next business day. Therefore the pip difference is .67 pips. Therefore, if you were short EUR, long USD you should have a trade whereby your position would be established .67 of a pip higher than previously.

Alternatively, the broker may credit or debit you account accordingly. In this case, on a €100,000 trade, you would get $15.12 interest on your USD (100,000 x 1.21 x 4.5 x 1 /360 x 100) and pay away $8.40 on the EUR (100,000 x 1.21 x 2.5 x 1 /360 x 100), so you should have $6.71 in your favour "

Oanda does not charge overnight interest. They charge interest in 'real time', that is, for the exact period of holding a position. This may be a fairer method or not, depending on your point of view. They have a calculator on their web site to allow you to calculate this cost.

To answer your question about holding a long EUR/USD position for three weeks, according to this calculator it would cost $182.28 for a 100,000 (1 lot) trade. This is based on 504 hours, the US interest being 4.55% and the EUR interest 1.9%. On the other hand, if you held a short EUR/USD position, the interest to you would be $116.92. Why the difference? The spread between the lending and borrowing rates of the currencies (In this case the US interest rate is 4% and the EUR interest rate is 2.3%).

As I have pointed out previously, brokers are generally not very transparent when it comes to showing the rates and the calculation, but in this respect, Oanda seems pretty fair.
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Old 22nd-April-2010, 06:15
8foldSquad 8foldSquad is offline
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Default Re: Interest Rate Charges

so, does that mean, that every trade, lending and borrowing stuff makes the money grow? or does it depend on the amount of time your money goes fished, hooked by other borrowers and lenders? i get all confused with all these terminologies and complicated math stuff. but i really want to learn, that's why i joined forex forums and others. i should get a seminar though, i think.
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Old 15th-November-2013, 13:48
Befull Befull is offline
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Smile Re: Interest Rate Charges

Well, according to you, Steve, right now, we have some good tools to calculate this kind of trading costs.
Thank you for that.
But could you be fairer about brokers?
Which other Forex broker could you propose in face of Oanda to get good interest rates for overnight positions?
It’s good to have the choice

“When Donald Duck traded his wings for arms, was he trading up or trading down?” Doug Coupland
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Old 18th-December-2013, 07:14
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AeraRrhgm AeraRrhgm is offline
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Default Re: Interest Rate Charges

hence, does indeed which means that, that every commerce, lender plus borrowing from the bank information would make the income raise? and also would it depend upon the quality of time frame money runs fished, simply hooked by way of alternative people plus loan merchants? i actually have all of bewildered by using almost all these terminologies plus tricky mathematical information. nonetheless i actually really want to master, clients i actually become a member of foreign currency user discussion forums as well as others. i ought to purchase a class while, there's no doubt that.
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Old 16th-January-2014, 03:29
mistersmith14 mistersmith14 is offline
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Default Re: Interest Rate Charges

Well the way I see here, it really depends on how much money you have. Is that right?
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Old 27th-March-2014, 05:09
cathwil cathwil is offline
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Default Re: Interest Rate Charges

People hate doing math, but we all know that some of this can be a good thing when we grow up. And still, as adults we have to develop certain math skills in order to make good financial judgments. We need to know the difference between simple and compound interest, and the way to compute each. Likewise, those planning to invest have to know how to compute dividend returns.
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