Are these fair charges?
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Thread: Are these fair charges?

  1. #1
    Can someone help me affirm something?

    I put a brief NZD/JPY a couple of weeks ago, in the money market (this is called a rolling commerce when you spread wager, like I am) and was billed to hold it brief, every day. This was using a firm called TDWaterhouse.

    At the moment, I am holding a EUR/USD long and becoming charged on a daily basis also although this is using a different account - E*Trade.

    I guess each broker has its own rules but I was under the impression, longs cost shorts and you earnt you interest?

    Can anyone clear this up so I can go to them with a clear argument?

    Thanks for your help,

    Tom

  2. #2
    This sounds a lot like you're being billed the swap rate, which has been described below: The differential between the interest rates.

    This isn't based on the typical long/short theory as in stocks. The determination of whether you get billed the swap is based upon the differential.

    Remember this: (LONG - SHORT - SPREAD)

    Thus, in your case, the NZD reaches 8.0% and the JPY reaches 0.50% as you're SHORT the NZD and LONG the JPY, you take (0.5 - 8.0) and you also get -7.5% which is the amount of interest you'd be CHARGED (because the rate is negative). Now mind you, there's a SPREAD at the rate and that will vary by seller, but often it is 0.25% so you'd be CHARGED -7.75 percent.

    In your EUR/USD, you're LONG the EUR (4.0%) and SHORT the USD (5.25%) Therefore, you'd have (4.0 - 5.25) = -1.25% - the disperse = -1.5% and that is how much you're CHARGED (because the differential is negative).

    On the other hand, if you're LONG the NZD and SHORT the JPY, you'd get paid 7.25% (8.0 - 0.5 - 0.25 disperse ) = 7.25%

    I don't know if this is the component you misunderstood or not, but there you have it, my explanation on swaps and what you could be getting billed.

    Quote Originally Posted by ;
    Can someone help me confirm something?

    I placed a short NZD/JPY a couple of weeks back, in the cash market (that is called a rolling trade when you spread bet, like I am) and has been billed to hold it short, per day. This was with a company called TDWaterhouse.

    At the moment, I'm holding a EUR/USD long and becoming charged on a daily basis also although this is with another account - E*Trade.

    I suppose every broker has its own rules but I had been under the belief, longs cost you and shorts earnt you interest?

    Can anyone clear this up so that I could go to them with a transparent argument?

    Thanks for your help,

    Tom

  3. #3
    Wouldn't it just be easier to install an old fashioned carry trade?

  4. #4
    Usually that has to do with all the interest rates of different ccy's. NZ rates are greater than Japanese, so if you're holding a brief position you need to cover th interest spread. Euro rates are lower than US rates, so their it costs you more money to go long. ( whatever other fees your dealer banks decides you should pay.)

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