Long term trades and brokers

[trader_2010]

Hi,

I was looking for help in choosing a SB/ broker which would be most suited for slightly longer term Forex trades i.e between 2 weeks to 8 weeks time-frame. I see that most firms have an overnight "charge"... one way to get around is to use "far quarter" pairs with bigger spreads. For bigger position sizes this becomes quite heavy.

Any thoughts/ comments welcome.

Thanks

 

[Jason Rogers]

Hi,

I was looking for help in choosing a SB/ broker which would be most suited for slightly longer term Forex trades i.e between 2 weeks to 8 weeks time-frame. I see that most firms have an overnight "charge"... one way to get around is to use "far quarter" pairs with bigger spreads. For bigger position sizes this becomes quite heavy.

Any thoughts/ comments welcome.

Thanks

Hi Trader_2010,

While I'm not sure what you mean by "far quarter" pairs, the charge you are referring to on overnight forex trades is called swap or rollover interest. You can actually earn this interest instead of paying it. It all depends on whether you are long or short the currency in the pair with the higher interest rate.

For example, you can earn rollover interest overnight when you are long AUD/USD, but you would pay rollover interest when you are short.

 

[Hate2Lose]

Hi,

I was looking for help in choosing a SB/ broker which would be most suited for slightly longer term Forex trades i.e between 2 weeks to 8 weeks time-frame. I see that most firms have an overnight "charge"... one way to get around is to use "far quarter" pairs with bigger spreads. For bigger position sizes this becomes quite heavy.

Any thoughts/ comments welcome.

Thanks

In short, there are none.

This is because overnight financing will be charged one way or another. The 'far quarter' pairs have the financing built in to the price.

If you want no overnight financing, you could trade deliverable FX (ie actually hold the currency on account).

 

[Jason Rogers]

This is because overnight financing will be charged one way or another. The 'far quarter' pairs have the financing built in to the price.

Thanks for that explanation. While I'm not familiar with that term, it sounds like a forex CFD based on currency futures contracts that expire every 3 months.

If you want no overnight financing, you could trade deliverable FX (ie actually hold the currency on account).

While it's true that no interest would be paid, one would have to consider the opportunity cost of holding a low yielding currency as opposed to one with a higher interest rate.

 

[trader_2010]

Currently I'm with IG and they seem to charge for overnight holding irrespective of the direction of trade on the same currency pair... hope I'm not imagining things... from what you said, one of the positions should credit interest and the other charge interest. Will check this again once I have open spot trades (one of my strategies involves opening long and short initial positions).

 

[Stargunner]

Currently I'm with IG and they seem to charge for overnight holding irrespective of the direction of trade on the same currency pair... hope I'm not imagining things... from what you said, one of the positions should credit interest and the other charge interest. Will check this again once I have open spot trades (one of my strategies involves opening long and short initial positions).

It's because IG aren't a real FX firm. It's derivatives in the form of CFD and SB's.

 

[Hate2Lose]

Thanks for that explanation. While I'm not familiar with that term, it sounds like a forex CFD based on currency futures contracts that expire every 3 months.




While it's true that no interest would be paid, one would have to consider the opportunity cost of holding a low yielding currency as opposed to one with a higher interest rate.

True. But if you do a sb/cfd, you'll be paying the overnight financing based on the interest rate differential, less the broker's 'haircut'. Either way in that case, there's a 'holding' cost.

 

[lucas_king]

Currently I'm with IG and they seem to charge for overnight holding irrespective of the direction of trade on the same currency pair... hope I'm not imagining things... from what you said, one of the positions should credit interest and the other charge interest. Will check this again once I have open spot trades (one of my strategies involves opening long and short initial positions).

You are correct. With IG, you will pay libor + 2.5% for longs and receive libor -2.5% for shorts. However, as Libor is currently around 0.5%, libor -2.5% = +2% roughly. So whilst libor is so low, you’re actually paying overnight financing for short positions

 

[Stargunner]

You are correct. With IG, you will pay libor + 2.5% for longs and receive libor -2.5% for shorts. However, as Libor is currently around 0.5%, libor -2.5% = +2% roughly. So whilst libor is so low, you’re actually paying overnight financing for short positions

Is this because of stock borrowing fees?

 

[lucas_king]

Is this because of stock borrowing fees?

No, it’s because interest rates are so low at the moment. Once interests start going up (above 2.5%), you’ll start receiving interest on your short positions