I’m looking at AUD/USD in my FXCM account. RollB is US$0.40 per day on a AUD$10,000 contract. Current interest rates are 2.5% for AUD and 0.25% for USD. My calculation for roll is as follows:
FXCM is paying $0.40, but I have calculated $0.58. Why the difference?
Just like there’s a difference between the Bid (Sell) rice and the Ask (Buy) price, there’s a difference between the interest rate you can earn for being long a particular currency and the interest rate you pay for shorting it.
This difference means you’re earning less than 2.5% interest for being long AUD and paying more than 0.25% for being short USD. That results in RollB being 0.40 instead of 0.58. For similar reasons, RollS is -0.84 instead of -0.58.
Are the interest rate differences consistent across the industry, or do they vary from one forex broker to the next?
They’ll vary (but in most cases, not drastically). For what it’s worth, I’d just chalk it up as like paying a commission on the rollover.