The carry-over charge is the interest rate that is charged or earned when a trading position is held open overnight. It is also known as the rollover fee or swap rate. Carry-over charges apply to financial markets that allow traders to hold positions overnight, such as the forex and CFD markets.
The carry-over charge is charged by the broker to compensate for the cost of borrowing the funds necessary to keep a trader’s position overnight. The amount of the charge depends on the size of the position and the interest rate differential between the currencies involved in the trade.
Let’s say a trader has a long position on GBP/USD (also known as ‘cable’) with a standard lot size of 100,000 units at the current exchange rate of 1.2500. They hold this position overnight, which means they must pay a carry-over charge depending on the interest rate differential between the two currencies.
Assuming that the pound sterling interest rate is 0.5% and the US dollar interest rate is 0.25%, the interest rate differential is 0.25%. To calculate the carry-over charge, the trader multiplies the lot size by the interest rate differential and the number of days they hold the position. For example, if they hold the position for one day:
Carry-over charge = (100,000 x 0.0025) / 365 = $6.85
The trader would pay or receive $6.85 depending on whether they are long or short on GBP/USD. If they hold the position for multiple days, the charge would be calculated for each day and added up. However, it is worth mentioning that some brokers may charge additional fees to account for their own profit margin.
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