Adamus
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I'm just wondering whether all forex brokers charge their clients interest on their forex positions, and how much.
At IB, when you're long over $100K, they pay you US base rate minus 0.25%, and when you're short over $100K, they charge you base rate plus 1%.
For example, simplifying it roughly, say I trade the EURCHF.
If I buy 100,000 EUR against the Swissy, I'll be long 100,000 EUR and short 142,000 CHF and say the trade lasts 24 hours (1/365) and the base rates are the same at 1%
1/365 * 0.75% * 100,000 = 2.05 EUR
1/365 * 2.00% * 142,000 = 7.78 CHF = 5.48 EUR
So interest earned - interest taken = 3.43 EUR
This is equivalent to more than 50% of the round-turn commission.
I guess I'll have to add it to the slippage and the spread too when calculating my transaction costs.
What the jargon for this? Something like 'carry charge'?
If I start trading 1,000,000 then the rates get more appealing - interest earned remains the same but the interest paid goes down to base rate + 0.5%.
Actually I don't know how IB calculates it. I trade on hourly bars, so some of my trades are over quickly enough to make it negligible, but it depends if they take a snapshot of the account at end-of-day or if they work it out to the hour - or minute.
What do people think?
At IB, when you're long over $100K, they pay you US base rate minus 0.25%, and when you're short over $100K, they charge you base rate plus 1%.
For example, simplifying it roughly, say I trade the EURCHF.
If I buy 100,000 EUR against the Swissy, I'll be long 100,000 EUR and short 142,000 CHF and say the trade lasts 24 hours (1/365) and the base rates are the same at 1%
1/365 * 0.75% * 100,000 = 2.05 EUR
1/365 * 2.00% * 142,000 = 7.78 CHF = 5.48 EUR
So interest earned - interest taken = 3.43 EUR
This is equivalent to more than 50% of the round-turn commission.
I guess I'll have to add it to the slippage and the spread too when calculating my transaction costs.
What the jargon for this? Something like 'carry charge'?
If I start trading 1,000,000 then the rates get more appealing - interest earned remains the same but the interest paid goes down to base rate + 0.5%.
Actually I don't know how IB calculates it. I trade on hourly bars, so some of my trades are over quickly enough to make it negligible, but it depends if they take a snapshot of the account at end-of-day or if they work it out to the hour - or minute.
What do people think?