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Turkish lira - surge in swap rates & the impact for overnight funding

JamesIG

Icon.pngAs per the Bloomberg article, the market for Turkish Lira is in dislocation. Volatility in the Lira has posted the biggest four-day surge since 2004 as officials adopt measures to create a scarcity of the currency to prevent a slump in its value days before local elections this weekend.

The cost of borrowing Lira overnight on the swap market exceeded 1000% because local banks are under pressure to not provide liquidity to foreign investors who want to bet against the currency.

1820104662_2018-12-1714_59_04-IGProductUpdates-IGCommunity.png.580216170ef1bca472b0836d1825ca2f.pngConsequently, spreads across all TRY crosses have blown out with some banks refusing to make a swap price. We have therefore gone to 'closings only' across all TRY crosses for the time being until we consider the market to have stabilized and will not be accepting new trades for the time being. Minimum Controlled Risk (i.e. guaranteed stop distances) for all pairs has been set to 20%, with non CR (normal stops) set at 1%. You can still trade to close.

Given volatility it’s impossible to give an accurate indication of the cost of holding TRY positions overnight.

To all clients holding TRY positions

Please ensure that you are happy with your positions in TRY going into 10pm GMT, and please remember that swap points are unstable. If you have any questions regarding this please review the "Where to find overnight funding charges on FX pairs" article along with the worked examples on that page. Any additional questions, please add them as a comment below. 

Where can I keep an eye on swap rates? 

You can see an indicative overnight swap rate within the IG dealing platform. 'Swap Bid' / 'Swap Offer' rates as shown below can be toggled on/off and show the expected rate for that day. I.e, to view what the expected rates you'll pay or receive on a currency pair at 10pm (GMT) would require you to check the specific currency row at any point on that same day (prior to 10pm). You can read more about that here.

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Further reading



2 Comments

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Hi James

I notice that IG is still charging client for shorting this pair at 25% and only paying about 8% for long.  Is IG defaulting on the interest payments of the long positions opened before volatility of this pair started?

Regards

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@Leewin - the IG administrative charge is a fixed percentage of 0.3% for CFD main lots (or 0.8% for CFD mini or spread betting trades). The majority of this swap 'cost' comes directly from the underlying market. 

You can read more about that in the notes to tables: https://www.ig.com/uk/help-and-support/spread-betting-and-cfds/fees-and-charges/what-are-igs-forex-spread-bet-product-details

 

Also worth noting that swap rates continue to fluctuate. 

 

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