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Role rates-overnight interest on Forex loans

Discussion in 'General Forex Talk' started by Andrew Jones, May 14, 2012.

  1. Andrew Jones

    Andrew Jones Recruit

    Dec 26, 2010
    Likes Received:
    Can someone please explain how these work. My understanding is this: I go short AUD/USD pair. I sell $100,000 AUD and use it to buy USD. I have taken out a loan and must pay interest on my debt. I could not sell the AUD unless I had some to sell So I had to borrow it first. If I hold the position of overnight-which I normally do I pay the interest On the borrowed money. But today I was talking to one of the salespeople at one of the major brokerages and discussing their "roll rates"and what he seemed to be telling me was incredibly expensive. on a $100,000 standard lot loan amounts to $16.40 daily. That's what I got from their webpage which one of the staff gave me. 1.6 pips per day! So if I were to hold that position for one week-which I often do-it's 8 pips. plus the spread say 2 pips. I must be getting it wrong. That would amount to 10 pips per week. Mine never seem to have paid that much when trading with IB. Can someone please straighten me out? Where am I getting it wrong?:confused:
  2. dkami

    dkami Sergeant

    Apr 13, 2010
    Likes Received:
    About explaining how it works I will have to let others answer that as my answer wont be detailed enough for you to get the full picture:)
    Or better yet go here and read Chapter 1, Part III. How are currencies traded in the FOREX market? http://www.forexpeacearmy.com/forex-forum/forex-military-school-complete-forex-education-pro-banker/

    But yes that Swap rate is a bit high but each broker charges a different swap rate

    for eg. with one of my brokers on AUDUSD with contract size 100000 (1lot) the swap long is 6.5 ($6.50) and the short swap is -13.50 (-$13.50)

    If you don't already know you can find the contract specification on MT4 platforms by right clicking the pair you wish to see in the market watch,then click on symbols in the drop down box,then high light the pair you wish to see and click on properties that will give you the contract specifications

    P.S. If I really want to go short on a AUD pair I scalp rather than hold but I find it better to just short another pair with lower swap rate and hold when risk is off (for eg. EURUSD that pays swap to go short with my broker)
    #2 dkami, May 14, 2012
    Last edited: May 14, 2012

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