Swap Rates – The Hidden Cost of Trading Forex
LMAX -4.39 / -3.69
Axi Trader – 1.80 / -0.80
Pepperstone -2.26 / -2.03
GKFX -1.22 / -0.75
OandA -0.90 / +0.10
Here are a few points to consider
1. For day-traders swap rates aren’t an issue. If you’ve closed out all your positions by the New York close then you won’t be charged any swap rate. The one exception to this is the broker OandA who along with their unique “any position size trading” also have a unique “charge swaps or roll-overs continuously” policy. What this means is that even if you’re only in a position for a few minutes you’ll be charged, based on the fraction of the full day you were in the position for. Fortunately OandA’s swap rates are pretty reasonable but it’s something to bear in mind
2. For position traders swap rates are a big deal. Whilst the charge for one day may only be a pip or so, if you hold a position for a month then this charge really adds up. Now in the good old days where interest rates were a decent amount you could actually earn interest on your position if you were positioned the right way on the right pair but these days of ZIRP you’re going to be charged every time. It’s an unfortunately but necessary part of trading but you do need to watch how much you’re being charged as in some cases the charges are quite a blatant rip-off.
3. This swap / roll-over charge also applies to all futures markets. However, in that case this is built in to the overall price as there is no roll-over but instead a single expiry. You will find that each day your futures contract will have gone up or down by a small amount relative to the spot price. However, in this case the daily change will be using the proper interbank interest rates. This does also mean that if you’re trading a CFD (e.g. Crude Oil) then there will be a daily roll-over cost and once again the broker is free to set whatever rate they want. As a general rule, from a swap rate point of view, it will always be cheaper to trade a futures contract than a CFD or retail spot rate.
3. If you’re doing reasonable volume with a broker then you might find that there’s some scope for negotiation on these swap rates. I’ve successfully negotiated a reduced swap rate on UK stock CFD trading some years back with a broker as I was doing reasonable volume with them.
The key thing to remember here is that many retail brokers know that most retail clients don’t think about swap rates when they’re choosing their broker and for some this is an opportunity to rip-off the client. It’s not as if they’re even taking on any risk as part of this: the extra charge over and above the interbank interest rates are just pure profit. So it’s worth checking your broker to see how much they’re charging