I’m grinning from ear to ear today because I made my first, big profitable trade last night on a couple of the Yen pairs. Altogether, I scored about 140 pips - probably not a huge amount by professional standards, but I proved to myself that this is doable if you know what you’re doing. I would have scored over 200 had I stayed in the trade, and I knew it would continue up, but I’d managed to get back everything I’d lost (and more) in previous bad trades when I had no clue what I was doing, and I wanted to lock that in for psychological reasons mainly. Once I build my equity a bit more, I’ll be more comfortable staying in longer when I’m sure of a trade.
Anyway, today I was looking at my account and watched right before my eyes as $4.03 was deducted from my equity, and the profits from my trades last night were a little less as well. Also, last night I acquired a rollover deduction of $78 when I was in the position long. I thought that in a long position you were paid interest. I was long on both trades. The first I gained money from the rollover, and the second, I lost it. What’s going on here? Obviously I’m out of the know on something. Thanks!
Well, I contacted my broker about this and this was the reply:
“You are seeing your equity fluctuate because the currency has not yet settled into US dollars. This will be the case when you are dealing with a currency pair where the counter currency is not US dollars.”
I’ve read about this before, but I don’t have a good grasp of it. Would someone be able to elaborate on this? Does this mean that I lose this money? Is the only way to prevent this from happening to trade a currency pair - XYZ/USD?
Rollover is based on the rate differential between the two currencies that make up the pair, If you are long the base currency and it has a higher interest rate than the quote currency (base is the first currency listed in the pair and quote is the second one, also called the counter), you get the difference as rollover. If the opposite, you pay out the difference.
It usually isn’t too big a deal and after you have been trading several pairs both long and short for a while I have found it all tends to average out.
Thanks, John. Is it usual practice to know the interest rates of each pair so you know what to expect, or do you not worry about it too much? If I wanted to know the interest rates and calculate the rollover, what’s the best way to go about it?
I no longer look at them (not that I ever paid much attention to them in the first place). First, I rarely keep positions open past 5pm est so it is irrelevant. If I do let trades run I expect to be in profit above spread and any negative rate impact. Over time I have found that the positive roll v. the negative simply cancel each other out in the long run. The rate differencials aren’t that big a deal. I am not going to get into a trade where I hope to make a few hundred dollars and then say, “Oh, I will have $5.60 deducted from this trade if I take it… never mind. I can’t possibly live with myself if I make just $194.40 after the spread so I will just pass the trade.”
If you plan on position trading, holding a trade for weeks or months, then rates will have quite an impact.
Your broker will have a window with all the rates posted somewhere on their platform or on their website. If not, Google will find what you are looking for. FXSteet lists them. BabyPips probably does as well but I have never looked for them!
Thanks guys, we’ll see what my interest comes to tomorrow night. My strategy currently has me holding positions from 1-3 days usually since I trade from the daily charts. It’s interesting to hear how different people handle their trades. This is something I’ve been thinking about - the 4 hour charts seem to yield less profit than a daily chart, however, you can perhaps make more trades on the 4 hour charts. Have you found that to be the case?
I’m in two positions over the weekend, so we’ll see how they turn out. The charts look good, but considering the “fiscal cliff” news yesterday, everyone seems to be predicting movements against my trades Needless to say, it’s making me a little nervous.
Sure, the 4 hr will usually generate more trades than the daily with the 1 hr generating even more and the 5 minute can generate a ton of them, all dependent upon the system being traded, of course. The size of the moves you are trading can vary significantly as well.
Needless to say, it’s making me a little nervous.