Overnight Interest

I am fairly new to trading, rather than jumping in with both feet as I see many people do I'd like to try and learn as much as possible while working away at it.
I made tons in fake trading, but once I got into real trading I found it to be quite different..
Onto the subject..

Can you profit off of Overnight Interest in any of the currencies?
If so can you hold that position for a long period of time and build a steady profit from the interest?
I have been building up negative interest, but just bought in AUDUSD today and made money from the interest (swap).
I am just curious if I was to hold that position for longer will it keep building.

I know this may be a stupid question, but I just need to confirm before making plans.
Thanks in advance!

Hello Wally,
you can profit of overnight interest but it will require some time for research. As example: You can go long on a broker account with high interest and short on another account with low interest. The difference will be your profit and as your trade will be 100% hedged the risk is minimal.

Best Regards, Alexander

Hey. Yes, you can make interest, but you can also lose money for carrying a position overnight. It is usually charged/added automatically and depends on where the market moves. Also be careful with leaving positions over the weekend, as market can change significantly and what seemed to be a profit on Friday evening can turn into a big loss on Monday.

WallySangster posted:
I am fairly new to trading, rather than jumping in with both feet as I see many people do I'd like to try and learn as much as possible while working away at it.
I made tons in fake trading, but once I got into real trading I found it to be quite different..
Onto the subject..

Can you profit off of Overnight Interest in any of the currencies?
If so can you hold that position for a long period of time and build a steady profit from the interest?
I have been building up negative interest, but just bought in AUDUSD today and made money from the interest (swap).
I am just curious if I was to hold that position for longer will it keep building.

I know this may be a stupid question, but I just need to confirm before making plans.
Thanks in advance!

Yes absolutely. A very valid strategy.

You will need to take a long term view of the market. I hold positions for months and years based on the swap. I enter off the daily using a small lot size and tight stop when the trend is in the direction of the positive swap and sit on it until the trend reverses on the daily chart. Not exciting or spectacular but a good steady equity boost. Be patient and time your entries but over a couple of months it's easy to build a healthy portfolio of profitable trades on multiple pairs. 100 & 200 sma are good friends for this type of investing.

When entering a position with an investment view I find the swap does become important. The swap tells you the bias of the interest rates between the two economies. Because the interest rate is used as a tool to bring an economy into balance it gives an insight to where the currency may be heading on a long term scale when compared to another. Still no guarantee but it helps to put your long term investment on the same path that the decision makers want there currencies to be heading when compared to the other currency in the pair.

Also you earn a small amount from the swap instead of loosing a small amount. You're heading in the right direction but remember to let them run. This has very little relevance for shorter time frames.

Yes, very astute there Mr. Silverthorn.

Playing for the swap is also called the carry trade, do a search for that and you will find a lot of helpful information. It used to be more mainstream but the banks change the swap rate. Some currencies actually have a negative swap for both buy and sell now.

There is another long hold way to profit from the swap plus a little more. Look for a currency where the price is very low and the currency pair has a positive swap for buys then buy about 10% of what you wanted to invest then when the market moves away from center maybe 50 pips buy another 10%. At some point the price will begin to move toward center and you cash in collecting all the swap on the way, Plus the profit from the trade.

Cycles are from 1 to 3 years so you may be holding for some time. Don't put all of your money into trades. Sorry, I should have mentioned this first, there are brokers that will pay a small percentage on the portion of an account not used for trading. You will be able to get money from the long hold trades plus swap and the money that you keep in the account will protect against draw-down and still make a small percentage of interest from the broker.

Bob

WallySangster posted:
I am fairly new to trading, rather than jumping in with both feet as I see many people do I'd like to try and learn as much as possible while working away at it.
I made tons in fake trading, but once I got into real trading I found it to be quite different..
Onto the subject..

Can you profit off of Overnight Interest in any of the currencies?
If so can you hold that position for a long period of time and build a steady profit from the interest?
I have been building up negative interest, but just bought in AUDUSD today and made money from the interest (swap).
I am just curious if I was to hold that position for longer will it keep building.

I know this may be a stupid question, but I just need to confirm before making plans.
Thanks in advance!

Yes, you can make profit of swap, but do some research before. Different broker have different rate, and Bob is right, some currencies have both negative swap for buy and sell. And of course there is the risk of losing money from the trade.

Okay so I have been trading now and been making money on interest. Every Wednesday I make more on interest, anybody have an opinion of why that is? I'm curious because it rises quite a bit.
Thanks!

For WallySangster;

Its actually three times the norm because it compensates for Saturday and Sunday when the markets are closed, (technically) but even if you do not have an open trade on the weekend, they charge you or pay you by what you have open on Wednesday. Isn't that fun?

It's a carry over from when the forex was part of the commodities market. They have a two day clearing so trades open at close on Wednesday would not clear the system for 48 hours, when the market was closed. Not real clear on why though.

Bob

Interesting. So 3 times the norm? When would you say would be a good time to trade then? (and get out if you need to)?

For jotekfinance;

I couldn't say, it has been years since I used the carry trade in any way. Right now all the countries and their central banks are trying to keep the economy going so they are pushing their interest rates so low it doesn't make sense to try to make money with the carry or government bonds.

However, if you are outside the US there is an ultra safe robot that makes around 10 to 14% a year. This is the one that took 3000 trades during the melt down of 2008 with no losses. Its free to try out on a demo account for as long as you like but it will not work on any US broker.

Go to TheSafeInvestor.com if you want to download the EA. However, if you have questions about downloading or whatever, write to support, I have nothing to do with sales or customers or the business at all.

Swaps are very important in forex and the most powerful tool that influence the price in the long run.

Out on six factors on investopedia: the very first two are about swaps.

https://www.investopedia.com/articles/basics/04/050704.asp

Good info man thank you.

For jotekfinance;

What the others are saying is that the swap or interest rate causes the price to move. If interest rates are high, then people want to buy that currency to get in on the higher interest. But buying a currency drives the price up for that currency just as it does everything else. So the best way to play the swap right now is to look at all the currency pairs from 2001 till present. Average the historical highs and historical lows for each pair to find the center of the historical trading. Get a currency that is far from center and buy or sell towards the center. Close out the trade when you are getting close to the center price and go find another currency that is far out of norm. That is the best way to trade the swap rates at this time. That robot I told you about uses just that type of strategy.

By the way, this is one of the very rare topics on fundamental trading on the board or even on the internet. (The carry trade was classed as fundamental trading back when it was popular). Warning, higher swap rates won't necessarily make the price move faster. It depends on the other currency in the pair and a lot of what is going on at ground level but currencies far from center will move back toward it more quickly.

Hope this helps everyone. I have the feeling that Jotekfinance already knew much of this and was helping the conversation along with his question, but I was surprised a bit as I thought Jotek was a technical trader. I am glade to see you on our side of the fence my friend.

Bob