I’m a green novice with Forex and trying now to make clear for myself some very basic things. I tried to search for the answers from many forex blogs and forums, but could not find anything reasonable (some explanations are too theoretical, some other are too primitive).
One of such questions regards swaps or roll-over charges. The most brokers charges the swaps for the positions left overnight. My broker calculates at the every midnight 11 USD per lot for every long EURUSD position, on Wednesday even for 3 days at once, that means 33 USD for every lot.
Currently I have a long EURUSD position (volume 1,0 lot) opened at the price 1,15480 with floating loss about 720 USD. What if I try to avoid paying swaps by closing the position every day at 23.59.55 and then re-open the same position again the next day after the midnight, say, at 00.00.05 or something like that? Would this step be reasonable? My only loss in this situation should be the spread points, right?
The main point which confuses me is the fact, that the position is now in losses. Let’s imagine that I close now this position. This will mean to fix my loss 720 USD and to decrease my balance by this total, right? Than I will re-open the same position 1,0 lot EURUSD after midnight by the current market price 1,14680 (let’s suppose, that the market price will not change during this short time interval). What will be my losses and risks? I do understand that my question is very naive, but, once more, I am just beginning.
@lal.remigiusz
A lot of thanks for your super-wise advice. Or may be I should not have start FX at all. However don’t you think that you advice is a bit (??) irrelevant to my question?
All
Could anybody tell anything regarding the topic?
Hey @newbie555, there is a few in these forums that know a great deal more about your question than I do. I believe it’s called a Carry Strategy and you basically make profit from the difference in the currencies Interest rates…
Each pair has a different swap rate, both negative and positive… ie: you can be in a losing trade but still get a positive return on the swap every 24 hours…
I have added a few articles (4) that may give you some more information on your question…
Any time you have to close a position for $720 loss is possibly not a sound strategy…
Yes, It was my first impression too when I started to think about it. But what exactly is the trap? If I close my position with $720 loss and re-open it by the current market price, would not it be the same as if I whould have not closed it? What is the differenence? My aim now is to understand the concept.
Thank you very much, I will study them all for sure. However carry trading as an idependent strategy is not exactly the thing I’m interested just now. Currently I made some not very good trades and my short-term puprose is to exit with minimal losses.
Do you mean, that you do not pay swaps at all? Well if use swap-free account you should pay comissions for trades or larger spreads of something like that.
Greetings!
I’ll try to answer you in the following few points. I hope it’s of a value to you.
If you close your position every single day and reopen it, you may end up with more losses than just -1.1 pip swap interest for the following reasons:- 1) possible slippage. This happens because, the new day open price may vary from the close price of the previous day. 2) The spread widens significantly at the beginning of the new trading day. Since you are in a long position, you have to pay greater than normal spread.
So, my advice to you is to get away from such a strategy.
It’s misleading to just mention, that you have a loss of 720 USD. If you have a 100K USD account, then it’s still under 1%. On the other hand, if you have a 1000 USD account, then it was a fetal mistake to let loss run over 70% of your equity just from one trade. Do you apply some risk management? Depending on your risk management and your plan for the trade, you could take actions if needed.
So what’s the solution from my point of view?
Follow your targets for this position. If you don’t have targets, just set targets.
Depending on your strategy, and trading goals, you might take many actions. As long as EURUSD is above 1.14327, I wouldn’t close the long position. you might buy again from around this level if you have the possibility (I’m totally against scaling on losing positions, but I’d risk it in such a situation). There are other possible actions
Good luck
Thank you, elosss, and my respect! Your short analysis is really the thing I hoped for when was writing my post.
Are these two negative factors mentioned in your post (possible slippage and wider spread at night) the comprehensive list or may be there are some other aspects too which we should to consider?
I’d dare to make some remarks to your explanation.
Let’s put aside for a minute the most important question (that is the risk of the slippage) and handle for the beginning the fixed extra costs due to spreads.
My broker offers quite tight spreads for EURUSD 8 points the most time of the day. Immediately after a midnight they usually increase the spread 2-4 times, well, say, till 20 – 30 points, for some short time about 20-30 minutes, I have not yet detected it exactly.
But then the spread becomes again 8 points. So if I close my position before the midnight at 23.59.00 o’clock and re-open it after the midnight about 00:30, the cost of the operation due to the spread will be 8 points, that means $8,00 per a lot – almost as much as a regular swap ($10,00).
BUT… When on Wednesday the triple swap is $30,00, so such operation might be the reasonable, if we ignore the risk of changing the current market price during this 30 minute interval. Do I miss anything?
Let’s take now about more important thing, the slippage risk. Yes, I’ve read much and theoretically know that EURUSD price can makes gaps at night (by GMT time) between NY trading session end at GMT 21.00 (it is exactly midnight in my time zone) and Asian session opening at GMT 22.00. I have seen many such gaps even with my own eyes. But as much as I can understand there is no any PREDEFINED DIRECTION of the midnight gap, am I right? This mean that today the price jumps up and tomorrow down and the next day up again. Doesn’t it mean, that if we rely on the expected AVERAGE value of the slippage for many nights (10? 30?) it should be zero, so we can ignore it at all in spite of the possible absolute size in points?
If we think about such transfered position as if it would be usual position, left from the previous day, gap is ot a problem, because in case of gap you would have the same price as if had just opened the position. But the situation in P&L is quite different. For example, you want to open again your long position. If there is a gap down, it is god for you - there is a possibility to have better price without inquring losses. But if there is a gap up, you will need to buy at higher prices, without additional profit on your account, so just short pullback can create losses in situation, when initial position could be in breakeven.
I’m glad to read your complement. I’d be more than happy to help as far as I can.
I don’t see other aspects. Maybe I have missed something, but I don’t think so.
I will reply generally. So I don’t consider just only the current price action on EURUSD
You have a possible case, that the price don’t return to your open price. Right?!
And yes you are right, there’s no specific direction for the gap. However, I have noticed that some pairs are following a common direction at the beginning of the day, however I couldn’t find a method to take advantage of such actions.
At the end, I want you to almost neglect the negative swap. I’d like to explain why,
let’s say you have a long term position open for 100 days (about 3 Months and 10 days) you will just need 100 pips in profit to regain the negative swap.
If you compare the loss to the negative swap interest, you will find out, you have a ration of about 100:1, so you should care a lot about your profit and loss more than the swap
From previous experience, the negative swap interest might be balanced on the long term as the direction of your portfolio changes. I mean at the beginning of the year, USD was up, so that I could cash in positive swap interest. Now, I’m focusing on CHF, JPY, GOLD or other pairs, that I must pay a little swap. At the end you might be paying a little or almost nothing.
Negative swap interests however are sometimes annoying. For example, I can sell Gold for a very long time even if it’s not moving, but I can’t do the same with a long position. The same with USDCHF. Actually, when I have to pay swap interest, I think twice about my entry time. (talking about long-term positions, that last for 1-10 months)
I’m looking forward to your reply and will be glad to continue this discussion with you
Best regards
Have you made any such observations regarding EUR.USD pair?
Maybe it rather depends on the big general trend? Or on the trend of the past day? Or on the trend of last our(-s) before midnight?
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Don’t you think that your two main conclusions are clearly in the contradiction?
I rather agree with your second conclusion: “Negative swap interests however are sometimes annoying”. IMHO the negative swaps, although they are not so large in the absolute size, are significant in the both psychological/emotional aspect and rational aspect. You HAVE to regard the swaps when constructing you trading strategy.
The main thing that you can not simply sit and wait for better price, if your position gives you a negative swap every day. It make your nervous and can force you to make a wrong decision.
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It seems, that you did not pay attention to the 2.nd paragraph of my previous post. Don’t you agree with my conclusion that according to the probability theory the AVERAGE slippage for several midnights (more is better) would be zero.
Surely, this presumption is correct only in the event that the direction of the slippage is really random, that means there is no any (hidden) rule which makes some direction of the slippage more probable than the opposite direction. Have you any reason to think that they are not random?
that says 50% chance head or tail - = Break even - Right ?
Basic principle of Martingale system !
"Several = a Bloody big number ! and it is denmonstable that over a large number of trials "the biggest bankroll - WILL bust the lesser bankroll - no matter what size the bankrolls actually are !
Hi @newbie555 If you let me, I want to share my opinion for your questions. What bothers me a bit is the intention to close a position with a big loss then re-open it again few minutes after the roll-over just to avoid the swaps. This doesn’t sound very reasonable to me. I have some suggestions:
Few minutes before and after the roll-over, the spreads are huge, the volatility is very low, the risk of slippage is higher (mostly negative). Usually, it’s not recommended to modify or open/close positions closely before or after the roll-over (at least I avoid this)
Are the spreads of your broker fixed or floating?
Do you consider the commissions also?
Perhaps you should start placing SL and TP levels but focus on the SL
If you want to avoid the swap charges, look for a broker which offers swap-free accounts. If this is not an option, maybe it would be better to focus on instruments which have positive swap rates and monitor the appropriate market conditions to place the relevant trade (depending if the positive swap rate is for short or long).
Choose instruments with lower negative swap rates.
Keep the trades opened for a few hours only on a daily basis.
Hope this helps.
Hi @sebastiano Thank you very much for you advices. Some of them are of general type and I surely regard them in future, but they are not applicable to my specific position, which has already been created without a Stop loss
and has already a big loss.
Did you mean “volatility is very high”? I thought that higher volatility can cause the higher slippage risk. Is my conclusion wrong?
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What do you mean as “negative”? Negative in which direction? For a long position “negative” means the currency pair price fell, but for a short position “negative” means the price growth.
Formally the spreads are floating, but according to my observations they are actually fixed. As I written in my earlier post; My broker offers quite tight spreads for EURUSD 8 points the most time of the day. Immediately after a midnight they usually increase the spread 2-4 times, well, say, till 20 – 30 points, for some short time about 20-30 minutes, I have not yet detected it exactly. But then the spread becomes again 8 points. So if I close my position before the midnight at 23.59.00 o’clock and re-open it after the midnight about 00:30, the cost of the operation due to the spread will be 8 points,
My broker does not charge commissions, only spreads and swaps.
I’ve already checked some of them. They all ask “commissions” which are more or less equal to swaps. I’ve concluded that it is more a play with words than a real difference.
Hi @newbie555, sorry for the mishap, I meant the liquidity is very low. As for the slippage, I wanted to explain that the risk of negative slippage is higher regardless of the direction of the price and the order itself.
Aha, so if the spreads are fixed that is why they are higher and the broker doesn’t charge any commissions (perhaps there are hidden costs in the spreads - that is a quite often met practice)
