Foreign exchange transactions have overnight interest. The specific interest is calculated according to the currency pair you bought.
The spot foreign exchange market delivery date is two days. For positions opened on Monday, the delivery date should be Wednesday. If the position opened on Monday is held until Tuesday, the next delivery date will be Thursday. If the opening of the warehouse on Wednesday is postponed, the delivery date will be pushed from Friday to Saturday, but the delivery date is actually next Monday because the bank is closed on weekends. If the trading position is closed on the same day, the trading will not be postponed.
When a transaction is pushed to the next delivery date, it will be postponed. Any extension of foreign exchange positions will hedge or offset the spread, which is determined by the overnight lending rate of banks. If investors hold currencies with higher interest rates, when foreign exchange positions are extended, they can get the spread of currency interest rates. The spread varies according to the daily price changes and the trading volume of foreign exchange positions.
For dollar-based currency combinations:
For example, USD/JPY: suppose it is an account of 100K (standard hand, 1 standard hand), short it on Wednesday 1 USD/JPY, market price 107.44/ 107.47, overnight to Thursday, PRMSell.
The calculation method is as follows:
-2. 1 8%/360x10000x1hand x 3 days = $ 18. 17) (Special note: the overnight interest on Thursday will increase or decrease by three times compared with normal days, because the delivery actually takes place on Saturday/kloc. )
For cross currency combinations:
For example, EUR/GBP: suppose it is an account with 1K(0.0 1 lot), and if you buy 5 lots of EUR/GBP on Friday, the market price is 0.6885/0.6890, and from overnight to next Monday, PrmBuy%-3.7 1, then the customers who buy EUR will pay interest.
-3.7 1%/360x 100X5 0.6890x1day =(-0.355)= $0.63.
If the customer uses a high-interest currency, the overnight interest on the open position will be added to the account funds. On the contrary, the related overnight interest will be deducted from the funds.
According to international banking practice, foreign exchange transactions are settled after 2 trading days. Overnight interest is calculated on the settlement date.
Monday: 1 day overnight interest. Trading on Monday, settlement on Wednesday, holding positions from Monday to Tuesday, and settlement date from Wednesday to Thursday, so you have to pay/collect 1 day interest.
Tuesday: 1 day overnight interest. The holding time is from Tuesday to Wednesday, and the settlement date is from Thursday to Friday, so the interest of 1 day should be paid/collected.
Wednesday: 3 days overnight interest. Hold positions from Wednesday to Thursday, and Friday to next Monday is the settlement date, so you have to pay/charge interest for 3 days.
Thursday: 1 day overnight interest. The position is held from Thursday to Friday, and the settlement date is from next Monday to next Tuesday, so the interest of 1 day should be paid/charged.
Friday: 1 day overnight interest. Hold positions on Friday until next Monday, and the settlement date is Tuesday to Wednesday, and only need to pay/collect 1 day interest.