Swap costs on hedge trades | Forex Factory

Options

Permalinks
Print Thread

Similar Threads

Swap costs and times 0 replies

Broker with lowest swap/rollover costs? 3 replies

Hedge / Swap interest 7 replies

Swap Close, Swap Open ? 3 replies

6 Basket Hedge: Large Swap 10 replies

Attachments: Swap costs on hedge trades
Exit Attachments

Swap costs on hedge trades

  • #1
  • First Post: Apr 3, 2021 2:04pm Apr 3, 2021 2:04pm
This has probably been asked many times and I've looked around the forum but can't find an answer...
My question is, if for example I buy 1 lot GBP/JPY and then later place a hedge trade (sell 1 lot GBP/JPY), how are the swap costs calculated?
Would you have positive swap on one trade and negative swap on the other? And if so, would these costs cancel each other out, or is one cost always higher than the other?
Thanks!
  • #2
  • Apr 4, 2021 12:28am Apr 4, 2021 12:28am
Quoting marwood
This has probably been asked many times and I've looked around the forum but can't find an answer... My question is, if for example I buy 1 lot GBP/JPY and then later place a hedge trade (sell 1 lot GBP/JPY), how are the swap costs calculated? Would you have positive swap on one trade and negative swap on the other? And if so, would these costs cancel each other out, or is one cost always higher than the other? Thanks!
In theory, you should have positive swap on one trade and negative swap on the other. They should, in theory, cancel out each other.

However, in reality, the brokers, like us, are humans and need to eat and feed their families.

Thus, more often than now, you will have the case whereby the negative swap is more costly than the positive swap. In fact, most of the time, you get negative swaps on both trades.
  • #3
  • Apr 4, 2021 1:00am Apr 4, 2021 1:00am
What kCBHk said.....

In fact negative rates often 3x or 4x the positive rate and even 10x when you start looking at some exotics.

Just one of the reasons why hedging is such a silly idea. You will pay daily for the privilege of holding a hedge position which has the exact same profit potential as having closed your trade.....
  • #4
  • Apr 4, 2021 3:48am Apr 4, 2021 3:48am
Thanks guys, I feared it wasn't so simple as the pos/neg swaps would cancel each other out.
I don't trade exotics and my hedging strategy is probably 80% intraday hedging. Just sometimes I need to hold for a day or two or over a weekend.
Cheers :-)
  • #5
  • Apr 4, 2021 8:12am Apr 4, 2021 8:12am
Each pair has its own Specification - right click on the Market Watch window and select it there.
What you'll find is the following:

Attached Image

this is the Specification for EURUSD on my broker and it shows the Swap Long as -4.06, and Swap Short at 0.3.
this being the daily rate applied per lot traded
it varies per pair and is based on your account currency.
it also varies with exchange rates
" check out The Traders Outpost "
  • #6
  • Apr 4, 2021 10:00am Apr 4, 2021 10:00am
Quoting RedLineFred
Each pair has its own Specification - right click on the Market Watch window and select it there. What you'll find is the following: {image} this is the Specification for EURUSD on my broker and it shows the Swap Long as -4.06, and Swap Short at 0.3. this being the daily rate applied per lot traded it varies per pair and is based on your account currency. it also varies with exchange rates
Thanks. What was confusing me is that the swap values are given in points. I like to calculate costs into a strategy in pips if possible.
For example, swap costs on a 1 lot trade on most majors/crosses will cost me around 1-2 pips daily (or 2-4 pips if hedged).
Commissions on 1 lot are also around a pip per trade.
Then there's the spread.
I know these can all vary depending on broker etc but I find it easier to calculate my trade costs and then convert/round up to the nearest pip.
Then I know 'x' pips will cover trade costs.

Another question, in FX total trade costs are basically spread/swap/commission (and sometimes slippage).
In stocks and indices there is no swap, so then you only have commission/spread/slippage. Is this correct?
Or have I missed a hidden cost in stocks and indices?
I know leverage etc is different, I just mean the basic trading costs that come with every trade.
  • #7
  • Apr 4, 2021 10:17am Apr 4, 2021 10:17am
Marwood,

Calculation of swaps can get very complicated, especially from a programming point of view. Many brokers do things differently. Swap is quoted in points, percentage, margin currency and quote currency.

If you want swap in points, the easiest solution is to find a broker that presents it in points.

Shares often attract swap considerations and to make it worse, they also attract dividend considerations, so tread lightly. They are not interest rate differential considerations, but rather overnight financing charges. You are borrowing money to make the trade after all. The other thing to watch out for, especially on commodities, are monthly contract rollover charges. Many contracts are not actual spot prices, but rather derived prices based on futures contracts. As the future contract expires, the price is re-aligned with the actual spot price, inducing rollover fees or credits and consequent pricing adjustments. Study your product in depth before playing this market.
  • #8
  • Apr 4, 2021 10:25am Apr 4, 2021 10:25am
Quoting kennyhubbard
Marwood, Calculation of swaps can get very complicated, especially from a programming point of view. Many brokers do things differently. Swap is quoted in points, percentage, margin currency and quote currency. If you want swap in points, the easiest solution is to find a broker that presents it in points. Shares often attract swap considerations and to make it worse, they also attract dividend considerations, so tread lightly. They are not interest rate differential considerations, but rather overnight financing charges. You are borrowing money...
Thanks for the info. That's exactly what I meant about hidden costs, I wasn't aware of monthly rollover etc..

About the swap, it's the points that were confusing me. I'd rather be able to see the swap costs in monetary terms rather than points.
Some kind of calculator that will tell you how much swap you have to pay in your account currency.
For example if I want to buy 1 lot long EUR/USD the calculator will tell you your potential swap costs as a currency amount.
Is there such a tool?
  • #9
  • Apr 4, 2021 10:36am Apr 4, 2021 10:36am
Some brokers will offer these calculators but you can use any pip value calculator and then multiple by the number of points swap in the contract specification window.

If you still have any doubt, just run a trade on a demo account.

Here is a pip value calculator from babypips :-

https://www.babypips.com/tools/pip-value-calculator
  • #10
  • Apr 4, 2021 10:51am Apr 4, 2021 10:51am
Quoting kennyhubbard
Some brokers will offer these calculators but you can use any pip value calculator and then multiple by the number of points swap in the contract specification window. If you still have any doubt, just run a trade on a demo account. Here is a pip value calculator from babypips :- https://www.babypips.com/tools/pip-value-calculator

Right, less cumbersome that I thought to just calculate manually every time ;-)
I just looked in the contract window on my cTrader platform (see picture).
It tells me the pip value anyway, but the swap is given in pips.
So is it answering my question already?
Swap on 1 lot long EUR/USD will cost -2.445 pips?

Attached Image (click to enlarge)
Click to Enlarge Name: swap.JPG Size: 101 KB
  • #11
  • Apr 4, 2021 11:01am Apr 4, 2021 11:01am
Quoting marwood
{quote} Right, less cumbersome that I thought to just calculate manually every time ;-) I just looked in the contract window on my cTrader platform (see picture). It tells me the pip value anyway, but the swap is given in pips. So is it answering my question already? Swap on 1 lot long EUR/USD will cost -2.445 pips? {image}
Which broker are you using? This is odd. Swap should be based on per lot taken. It has nothing to do with pips.
  • #12
  • Apr 4, 2021 11:03am Apr 4, 2021 11:03am
Quoting kCBHk
{quote} Which broker are you using? This is odd. Swap should be based on per lot taken. It has nothing to do with pips.
Demo account on ctrader, no broker as yet....
  • #13
  • Last Post: Apr 4, 2021 11:10am Apr 4, 2021 11:10am
Quoting marwood
{quote} Demo account on ctrader, no broker as yet....
Maybe that's why, different brokers charge differently..
0 traders viewing now