Are these fair charges?

Can someone help me confirm something?

I placed a short NZD/JPY a few weeks back, in the cash market (this is called a rolling trade when you spread bet, as I am) and was charged to hold it short, per day. This was with a company called TDWaterhouse.

At the moment, I am holding a EUR/USD long and getting charged on a daily basis too although this is with a different account - E*Trade.

I guess each broker has its own rules but I was under the impression, longs cost you and shorts earnt you interest?

Can anyone clear this up so I can go to them with a clear argument?

Thanks for your help,

Tom

trader_dante said:

Can someone help me confirm something?

I placed a short NZD/JPY a few weeks back, in the cash market (this is called a rolling trade when you spread bet, as I am) and was charged to hold it short, per day. This was with a company called TDWaterhouse.

At the moment, I am holding a EUR/USD long and getting charged on a daily basis too although this is with a different account - E*Trade.

I guess each broker has its own rules but I was under the impression, longs cost you and shorts earnt you interest?

Can anyone clear this up so I can go to them with a clear argument?

Thanks for your help,

Tom

Click to expand...

It is indeed true that going short on a share on index will mean you 'get paid' by the broker, rather than paying a nightly rollover fee.

Currencies work a little differently. With currency trading, you are effectively buying one currency and selling another (I know that this doesn't actually happen with spreadbetting, but bear with me). Different currencies all have different interest rates, yes? Bank of England 5.5%, for example.

If you short NZD/JPY, then you are effectively selling NZD and buying JPY. Since the NZD base rate is much higher than the JPY one, there is a cost incurred in borrowing that money, and this is passed on to you in the form of your nightly fee while the position is open.

The shoe is on the other foot with EUR/USD though, if you go long. In this instance, you are buying EUR and selling USD. The US base rate is higher than the eurozone's so you are charged for buying euros and selling dollars.

It's not so much about being long or short as it is about relative interest rates. Does that make sense? Always check the respective interest rates on a currency pair before entering into a forex rolling trade, as it may cost you more than you bargained for otherwise!

Hope this is helpful

Tom,

In theory, you are 100% correct one should earn on shorts and pay funding on longs. The logic is pretty straight forward, if you short the stock, you are long cash and earn on it, and vice visa if you are long.

This holds true for most instruments where a single interest rate would determine funding, for example stocks or index related instruments. The complication here comes in when you look at currencies. You have to now consider interest rate differentials between the two countries. In this instance you are short New Zealand Dollar, (where cash rates are around 8% so that’s what it will cost), against being long the Yen (where cash rates are 0.5%, so that what you will earn). You can see the impact of the difference in interest rates which is possibly why you are being charged funding.

It then boils down to a question of how much you are being charged and is it related to the rate differential. Sorry not to be able to give you more ammunition. (ps we don't offer this cross so this is no plug....).

globaltrader

There's an echo in this room....(Jbat001 faster on the draw)

Thanks for all your comments.

For £4 a tick long on EUR/USD I am being charged £5.11 per day.

For £2 a tick short on NZD/JPY I was being charged £4.30 per day.

Not extortionate by any means - or at least I didn't think so (but feel free to comment!)

I was just confused about being charged when I was both long and short. Thanks to Jbat001 and globaltrader for clearing that up.

Trader_dante,

You might be interested to read The Economist article this week entitled 'A warning shot' on the NZD currency and the forces around it (essentially the NZ central bank's fx intervention versus Japanese savers and other carry trade enthusiasts). Sounds like this central bank might have its act together, so good luck.

globaltrader said:

Trader_dante,

You might be interested to read The Economist article this week entitled 'A warning shot' on the NZD currency and the forces around it (essentially the NZ central bank's fx intervention versus Japanese savers and other carry trade enthusiasts). Sounds like this central bank might have its act together, so good luck.

Click to expand...

This sounds rather silly on the part of the RBNZ. Remember what happened during the ERM crisis when the (much more powerful) Bank of England tried to defend Sterling against George Soros and the army of private and institutional speculators? They got pwned, didn't they?

Massive effective transfer of capital from the public to private ownership!

Jbat001,

My thoughts exactly. The Economist likens the actions of this central bank to 'letting rip with a pea shooter' and suggests that 'peashooters are of little use against a determined foe'. Although, even the free-market preaching Economist is forced to admit that the intervention was 'well timed' and did soften the NZD.

Either way, an interesting position that trader_dante is holding.

globaltrader said:

Jbat001,

My thoughts exactly. The Economist likens the actions of this central bank to 'letting rip with a pea shooter' and suggests that 'peashooters are of little use against a determined foe'. Although, even the free-market preaching Economist is forced to admit that the intervention was 'well timed' and did soften the NZD.

Either way, an interesting position that trader_dante is holding.

Click to expand...

Er, I was holding this position a while back but not any longer...

OK, £2 a tick short in the Dax earns me £2.60 over the weekend (3 nights rollover)

That seems ridiculous!

trader_dante said:

OK, £2 a tick short in the Dax earns me £2.60 over the weekend (3 nights rollover)

That seems ridiculous!

Click to expand...

Why is it ridiculous - because it's a tiddly amount, or because it's counterintuitive?

carry trade

Hi All,
Just like to add my experience.I went short the usd against the yen for one night at 40 pounds a point.I came out with a two tic loss cost 80 pounds but the overnight cost was another 76 pounds.If i had been long i would have made the same amount.Ironically i was right in my direction but my nerve did not hold.Anyone know if you can buy it bottled to help with your trading,
Peter

Peterwood, I find that nerves are a direct result of being over leveraged.

When you place a trade you should of course place a corresponding stop. If the stop, once hit, results in a loss of equity that is equal too or under 3% then it really shouldn't bother you what happens.

That is, if you know that you have an edge in the market that works over time.

peterwood said:

Hi All,
Just like to add my experience.I went short the usd against the yen for one night at 40 pounds a point.I came out with a two tic loss cost 80 pounds but the overnight cost was another 76 pounds.If i had been long i would have made the same amount.Ironically i was right in my direction but my nerve did not hold.Anyone know if you can buy it bottled to help with your trading,
Peter

Click to expand...

Just comes with experience - I've been at this two years now, and the market still spanks me now and then. I've been completely wiped out several times, but I keep coming back. I know 10,000 things that don't work, and ultimately, I shall succeed!

It's about two thirds ability and one third psychology, it seems to me...