Hi all,
I was chatting with my Broker about the costs/spreads of my orders and what was going on with charging me pips per day (I discovered when I closed, they would take a cut and the longer it took for me to close the more pips they would take. They said it was because I was using a forward contract…so I asked what’s the difference between a forward contract and a normal order they told me the following I was wondering if anyone could help decipher it:
[I] “We have agreed that the margin on the spot market is 10 points and then to extend out to a one month forward the cost at this stage is 16 points. The forward points may change depending on interest rate forecasts at the time of you booking trades. There is no difference in pricing between contracts and orders so I’m not sure what you mean by this?”[/I]
Basically from what I can understand is:
a) a forward contract is the same as an order in pricing.
b) The spread will be 10 pips, then it will be 16 pips to keep it for a month (basically the cost of 0.5333333 pips per day).
This is massively confusing since well… what are forward points I’ve never heard of a charge of pips per day…
Are your orders open for more than a day? Just thinking maybe it’s the daily rollover interest which can be either positive or negative depending on the pair and the trade (long/short). Rollover cost/gain is calculated at 5pm EST.
The spot forex market is a short-dated forward market - specifically 2-day settlement. That means when you enter a position you are basically making an agreement to do a currency exchange in 2 days. Of course you never actually do that. If you hold your position beyond the end of the trading day your broker “rolls” you forward by closing out your current trade and entering a new one. Not all brokers do things in this overt rollover fashion. Some just handle things by paying/charging carry interest.
Thanks for all the responses. Yeah my trade are open more than a couple of days, usually a month at a time. And the I’m usually shorting a base currency that has a much higher interest rate than the quote so I read there would be some interest nicknacks happening here.
From Rhodytrader’s post it seems if my broker does the “rollover” maneveur I can avoid being charged the carry interest?
I suppose you could close your orders before 5pm EST each day and then re-open them again after…except you’d be paying the spread again…which is worse?..lol
