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Where to find overnight funding charges on FX pairs

DanielaIG

Turning on FX swap bid/offer

When trading currency pairs, if a position is held through 10pm, it will incur an overnight funding charge. This charge is based on the interest rate differential between the two currencies in the pair, where you receive interest in the currency you buy and pay interest on the currency you sell. Swap rates also apply to cryptocurrencies and spot gold, silver, platinum or palladium.

Based on client feedback we have now added these overnight funding charges to the platform. Please keep in mind that they are indicative figures. These swap rates are viewed from a watchlist. Once you have an FX pair on the watchlist, by clicking on the three lines that are positioned on the left-hand corner next to the word 'market', a drop down of columns will appear. Click on the swap bid and swap offer buttons to activate them.

Tomnext.png

What does this mean for me?

If GBPUSD was quoted as 0.22 / -0.85 then the 0.22 would be what you receive if you are short, and the 0.85 would be what you pay if you are long. You then need to do the trade size times this value.

For example a spread bet of £3/pt on the short trade would result in a credit to your account of 66p (which comes from 0.22 x £3). If you have a CFD account and you're holding a single $10 contract long, you would pay $8.50 per night (which comes from 1 contract x $10 x 0.85).

 

Where does this figure come from?

The figure is shown in points and depending on the currency you hold and the direction of your trade you can either earn or pay a premium, keeping in mind that there is an IG charge of 0.3% (0.8% for mini contracts and spread bets) included in the calculation. If you are long on a currency pair, you will need to focus on the swap offer, and if you are short you will focus on the swap bid.

If the swap is a positive number, you will be credited, because the interest rate on the currency you are buying is higher than the interest rate on the currency you are selling. If the rate is a negative number you will be charged, because the interest rate on the currency you are buying is lower than the interest rate on the currency you are selling.

If the interest rate on the euro is 0.25% and the interest rate on the USD is 2.75% and you buy EURUSD, you will be receiving 0.25% but paying 2.75%, and will be left with an interest rate differential of 2.5 points (excluding the IG change).

 

Example:

Let us take EURUSD as a worked example. We will need two figures for our calculation, the underlying market swap rate (known as the Tom/Next rate, which is provided by the banks), as well as the current spot rate of the currency pair at 10pm. The below figures are indicative for this calculation.

An example of the underlying 'Tom/Next' rate for EURUSD: 0.34 / 0.39
An example of today's Spot FX rate for EURUSD at 10pm UK time: 1.0650

Once we have the Tom/Next rate, we take the 10pm EURUSD spot rate (in points) and multiply by IG's charge of 0.3% (or 0.8% for CFD mini or Spread Betting deal), which is then divided by 360 days to get an overnight value.

= (10650 x 0.3%) / 360
= 31.95 / 360
= 0.08875

This is then applied to the underlying market quote of 0.34 / 0.39

Bid
= 0.34 - 0.08875
= 0.25125
= 0.25

Offer
= 0.39 + 0.08875
= 0.47875
= 0.48

This then gives us our overnight funding rate, inclusive of IG charge, of 0.25 / - 0.48. The '˜Offer' is negative, because currently there is a higher interest rate on USD than there is on EUR. Therefore, buying the pair would leave you paying a larger USD interest vs receiving a smaller EUR interest.

E.g. If you were long one main lot, you would do 'Number of Contracts x Contract Size x Tom Next Rate'. Using the information above, if you were long one main lot, your 'Daily FX Interest' would be: 1 x $10 x - 0.48 = $4.80 charge per night. (Conversely if you were short, you would receive $2.50 per night).

 

Important factors to note

FX settlement of T+2 means that if you hold your trade through 10pm Wednesday (UK Time) then you'll need to incorporate the weekend into the calculation, and therefore you'll have an 'FX Interest Charge' of 3 days. This is because currency can't settle at the weekend, and the new spot rate would therefore fall on a Monday. It also follows that if you hold through 10pm on a Friday, you only receive a 1 day charge (even though you have to hold through three days before you can close the position).

Settlement of FX can't take place on public holidays. Therefore, over periods such as Christmas or Easter, or public holidays such as Martin Luther King Day or Thanksgiving, you may see interest charges for a variable number of days.

Some currencies trade on a T+1 basis, most notably USDCAD, USDTRY and USDRUB.



8 Comments

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Hi @hart,  it looks like you will need to switch to the new platform to see that particular function. It looks like an added update to the new platform and may not be added the old.

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thank folks, for the prompt replies..

Yes i can see it from the new platform.

cheers

hart

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Guest stevtheangle

Posted

i dont bother with the watchlist, so does this mean i cant see swap rates?

i cant see them when i look at the watchlist choices list...

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Thank you IG.  This is one piece of information (tom next swap rate) that I have been waiting for years. 

CMC has provided that years ago and I am please that IG has finally caught up.

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Guest stephen

Posted

Thanks IG,  this is very useful, before I thought there were not difference between mini contract  and regulars

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Hi Stevtheangle,

Swap rates are only displayed on a watchlist as of now. It is very useful and simple to create a watchlist where you can track the products you are most interested in and can have added functionalities like these, which are not available on the standard product lists.

 

Thank you everyone for the positive feedback, we are glad you find these functionalities useful.

 

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