As I am learning in Pip School to take advantage of varying interest rates when I keep a position over night, Does the broker set the rate? If not, how do locate what the rate is going for?
Thanks Much,
Quinn (newbie)
Interest Rates Table Forex News
how to calculate the carry trade can be found in the babypips school 
With the world banking system keeping thier rates so low, the carry trade is dead at the moment IMO.
But once interest rates start to rise again, which they will, this will become viable once again.
The brokers will most likely pocket the difference when the rates change.
steveshelby2550 that is untrue, brokers will follow the bank rates
Thanks for your link to the interest table jawnlooi. I think that is exactly what I was looking for. So, the bank of england is paying 3.75% and the USA is .125%. Does that mean that buying a GBP/USD pair will yield me the difference because I am buying pounds(cable)? Quinn:)
consult the chart again, i think you have mistaken AUD with the GBP.
GBP = 0.5%
USD = 0.125%
difference = 0.375%
hence, if you buy GBPUSD, you ‘sell’ 0.125% of USD interest, and ‘buy’ GBP’s 0.5%. therefore you’ll earn 0.375% per annum. do note that you have to divide this number by 52 weeks to get the per week %
Yes, I had mistakenly the AUD for GBP. Thanks again for the Website on interest rates. :)
[B]Do not assume that Central Bank interest rate differentials represent the interest you will earn (or pay) on your overnight forex positions.
Interest amounts paid or charged by my broker (FXCM) are wildly different from the amounts I calculate based on current Central Bank rates.
You might find the same situation at your broker.[/B]
Let’s start at the beginning, with the simple explanation of carry charges given in the Babypips School.
Here is the example given in that lesson. I have highlighted 3 sentences in green.
Unfortunately, this straightforward example does not correspond to what brokers actually do.
The Babypips School example says that the SAME interest-rate differential between two currencies is EITHER paid to your account, OR charged to your account, depending on whether you are buying or selling the higher-yielding currency.
In the case of my broker, FXCM, interest amounts paid/charged are based on prevailing money-market interest rates, not on official Central Bank interest rates.
It would be reasonable to assume that these money-market rates are roughly proportional to the corresponding Central Bank interest rates. Also, it would be reasonable to assume that, whatever the money-market rate differential worked out to, the same amount of interest would either be paid to, or charged to, my account, depending on whether I were long or short a particular pair.
Apparently, both of those “reasonable” assumptions are wrong.
The actual situation is this: the interest amounts paid or charged by FXCM (the so-called roll amounts) bear no apparent relationship to Central Bank interest rates.
Furthermore, the amount of interest paid and the amount charged by FXCM are NOT the same for ANY currency pair. As you can probably guess, if I buy the higher-yielding currency, I earn a small amount of interest; if I sell the higher-yielding currency,
I pay a larger amount of interest. In other words, FXCM manipulates their roll-rates to THEIR advantage.
In some cases, it’s even worse than that. On certain currency pairs, FXCM actually CHARGES interest on BOTH long and short positions (see roll-rates for the GBP/JPY, in the examples below).
Here’s what FXCM says about Rollover in their Trading Station User Guide:
And here is what FXCM (UK) says in their Terms of Business (customer agreement):
from FXCM (UK) Terms of Business, page 33, Schedule 3 - Margined Transaction Supplement, paragraph 6:
- Settlement Date, Rollover and Offset Instructions
6.1 FXCM will automatically rollover all open positions on your Account to the following business day unless you notify us to close your position(s) prior to 17:00 EST. FXCM will charge you a fee in respect of each such position that is rolled over.
Here is a screen-shot of the Simple Dealing Rates window of the FXCM Trading Station, showing their current roll-rates for
11 selected pairs.
Here are 4 examples (using FXCM’s current roll-rates for the EUR/USD, the AUD/JPY, the NZD/USD, and the GBP/JPY) showing the wild discrepancy between implied interest amounts (based on central bank interest rates) and the actual interest amounts paid or charged by FXCM:
Central Bank Interest Rates
EUR 1.00%, USD 0.25%, interest-rate differential 0.75%
AUD 3.75%, JPY 0.10%, interest-rate differential 3.65%
NZD 2.50%, USD 0.25%, interest-rate differential 2.25%
GBP 0.50%, JPY 0.10%, interest-rate differential 0.40%
Implied Interest Amounts (based on Central Bank rates), per mini-lot (10,000 units of base currency)
EUR/USD: $75 per year = $0.21 per day
AUD/JPY: $365 per year = $1.00 per day
NZD/USD: $225 per year = $0.62 per day
GBP/JPY: $40 per year = $0.11 per day
FXCM Roll-Rates (actual daily interest amount charged or paid), per mini-lot
EUR/USD: Short -$0.50, Long +$0.05
AUD/JPY: Short -$14.72, Long +$4.82
NZD/USD: Short -$6.95, Long +$2.93
GBP/JPY: Short -$3.24, Long -$1.18
[B]Your broker might be playing these games, as well.
Before you calculate carry-trade profits based on Central Bank interest rates, you need to get your broker’s actual roll-rates (long and short) for the pair you are considering.[/B]
Clint
The London Interbank Offered Rate (LIBOR) is the daily reference rate based on the interest rates at which banks borrow unsecured funds from other banks in the London interbank market.
That’s the benchmark for interest charged or paid.
LIBOR is calculated by Reuters and published by the British Bankers’ Association (BBA) after 11:00 am GMT each day (London time).
LIBOR is calculated daily for 10 currencies.
The central banks interest rates are not LIBOR. There is no such thing than central banks interest rates differentials because the central banks don’t lend to entities other than the London Interbank Markets banks. Those banks are the only ones who get charged central bank interest rates.
Central bank funds are not unlimited in size and are allocated depending on the amount and size of tenders from the London Interbank Market banks. Tenders do not need to be filled. There is no obligation from the central banks to do so.
The second factor influencing interest rates and interest rate differentials are CME EuroDollar [ED] future contracts and interest rate swaps. They are based on three month LIBOR and extend up to ten years.
If not, how do locate what the rate is going for?
BBA website and bankrate.com is your reference.
There is a spread with interest rates between borrowing and investing. Quick example…take a look at the difference between the interest rate paid on deposit for a savings account versus what the bank will charge you if you want to borrow the money. The bank will not give you the same rate. The same is true with the rollover when you’re holding the higher yielding currency. Just because you can borrow at a certain rate does not mean you can then goto the bank and invest at that same rate.
Additionally, central bank rates are target rates, but they are not necessarily the prevailing market rates at which banks will lend to each other.
-Jason
Thank you Jason. I found the rate table I was looking for. I appreciate your time responding to my email. Thanks and Good Luck.
Quinn