This is what I had in mind for a prospective short term ‘overnight’ trade with USDTRY on a Wednesday. The Swap rate for a Short position on USDTRY is currently 90 per point.
Red horizontal line is the SL
Gold horizontal line is the Breakeven point
Green horizontal line is the TP
Looking at the comment on the top from left to right:
Risk: Risk on the trade within the Open Price to SL distance
PnL: PnL on the trade within the Open Price to TP distance
BE: Breakeven point for the trade - which will come later
LotSize: lot size
SL: SL value and in (pips)
TP: TP value and in (pips)
Spread: Live Spread and (Spread when trade opened)
Total Margin: Margin for the position + money required to absorb the risk
Ratio: PnL/Risk ratio - R:R
Commission: Commission for the prospective trade, based on lot size and round turn £5
Swap: Overnight Swap interest for Wednesday trade given 90 a point on USDTRY, lot size and point value
Diff: Difference between Swap interest and Commisson
Win Prob: Probability of winning the trade based on random market and the relative SL & TP distances
Expected Value: EV for the trade using the win probs, commission, swap, risk and PnL
This trade is setup as if it were to enter just before 21:59 on a Wednesday where the Swap rate on all pairs is paid or charged at 3 times the normal value to account for the weekend. Once you “Enter Trade” at the right time the positions open with the SL and TP in place.
In this case the win prob is slightly higher than 50% because the PnL/Risk Ratio is slight less that 1 corresponding to the difference of £931.07 and £1000 respectively. Normally when you enter a trade, even at 1:1 R:R the ratios are automatically against you (negative edge) once you take into account 1) the commission 2) the spread. The relative importance of those diminish as the distances of the TP and SL increase, so there is a built in bias.
In this case because the Swap interest is so high, it offsets the Commission to build a profit of circa £200 into the trade from the get go, reversing the normal situation. As a result the trade once opened, would have to move against me to the gold horizontal (BE) line to reach break even.
In that case the Expected Value is positive from the start without any input from me. So I could either hold the position and wait for the trade to play out to the SL or TP, or I could close the position immediately at 22:01. I assume that there would be some spread movement around the time of the Swap for exactly those reasons, but I think that if the SL and TP distances are high enough the spread would very quickly tighten where the midpoint of the Ask and Bid would have normal market characteristics that is, would move in sync with regular trade flow for that pair.