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Swap / Interest FREE Account

  • #1
  • First Post: Mar 20, 2007 11:34am Mar 20, 2007 11:34am
There are some brokers who offer swap/interest free accounts.

I am just wondering who pay for the negative swap open position? The broker themselves?
  • #2
  • Mar 20, 2007 1:36pm Mar 20, 2007 1:36pm
This is a terrific question. As I've stated before, the broker doesn't really "pay" anybody. They house the positions themselves until you reach a certain threshold. Their thinking is that for the most part, most trades in this category will be losing positions.

I'm convinced, however, that once you have reached a certain threshold of profitability, they HAVE to drop your position from the house and sell it to a bank, at which point THEY will be charged interest...that obviously won't fly, so they'll likely revoke your swap-free priviledges.

The reason I believe this is because I went 3 months on a swap-free account without ever a peep. My largest drawdown on my positions was about $50K. However, overtime, my positions turned positive and after a while, I had a PROFIT of over $30K on my positions (of course, all negative swaps, normally). Within 1 week of that turning point (when the Yen ticked up hard), I was told that my swap-free priviledges were revoked and from then on out, I'd be charged interest.

My guess is that if you trade negative swap pairs and your account shows a certain amount of profit (it's probably somewhere in the 10's of thousands), they will be forced to sell your positions to a tier 1 bank...that's when you'll run into problems...AND I suspect this will occur whether you're muslim or not.

This is my conjecture though...and it makes sense. If I were running a business, I'd keep losing positions in house as long as could so that the client would A either liquidate, or 2 they'd be hedged by other positions from my client base. This would be worth not collecting pennies on the swap spread.

Again, if you can manage to keep your negative swap positions in the red for long enough, my guess is that they won't complain.

Quoting bodshyipmonitor
There are some brokers who offer swap/interest free accounts.

I am just wondering who pay for the negative swap open position? The broker themselves?
  • #3
  • Mar 20, 2007 5:54pm Mar 20, 2007 5:54pm
Mrmikal,

Thanks for sharing your experience. I've heard people say it can't be done but nobody has gone into detail as to why or at least potentially why.
Thanks

Mike
Taking Life One Pip At A Time I officially have my own opinion.
  • #4
  • Mar 26, 2007 6:20am Mar 26, 2007 6:20am
Quoting mrmikal
This is a terrific question. As I've stated before, the broker doesn't really "pay" anybody. They house the positions themselves until you reach a certain threshold. Their thinking is that for the most part, most trades in this category will be losing positions.

I'm convinced, however, that once you have reached a certain threshold of profitability, they HAVE to drop your position from the house and sell it to a bank, at which point THEY will be charged interest...that obviously won't fly, so they'll likely revoke your swap-free priviledges.

The reason I believe this is because I went 3 months on a swap-free account without ever a peep. My largest drawdown on my positions was about $50K. However, overtime, my positions turned positive and after a while, I had a PROFIT of over $30K on my positions (of course, all negative swaps, normally). Within 1 week of that turning point (when the Yen ticked up hard), I was told that my swap-free priviledges were revoked and from then on out, I'd be charged interest.

My guess is that if you trade negative swap pairs and your account shows a certain amount of profit (it's probably somewhere in the 10's of thousands), they will be forced to sell your positions to a tier 1 bank...that's when you'll run into problems...AND I suspect this will occur whether you're muslim or not.

This is my conjecture though...and it makes sense. If I were running a business, I'd keep losing positions in house as long as could so that the client would A either liquidate, or 2 they'd be hedged by other positions from my client base. This would be worth not collecting pennies on the swap spread.

Again, if you can manage to keep your negative swap positions in the red for long enough, my guess is that they won't complain.
Thanks for replying.

Anybody working in any forex brokerages that can comment on this?
  • #5
  • Mar 26, 2007 7:07am Mar 26, 2007 7:07am
Some brokers have these terms either in fine print or obvious as MIG does on their web site;
Quote
MIG Investments offers the possibility of Islamic or swap-free accounts. Swaps will not apply to such accounts. For this service MIG Investments will charge a fee of 5 USD per traded lot round turn. MIG Investments reserves the right to discontinue an Islamic/swap-free account without warning. MIG Investments will invoke this right in case of suspicion of abuse.
  • #6
  • Apr 3, 2007 7:05pm Apr 3, 2007 7:05pm
Guess afterall, I still haven't get an answer.

Normal Swap Account
Client A get +swap on open buy position.
Client B pays -swap on open sell position.

Therefore, brokers get -swap from Client B and give it to Client A.

Swap-Free Account
Client A get +swap on open buy position.
Client B pays 0 swap on open sell position.

Client B doesn't pay swaps anymore, so who pays the +swap for Client A?

I am just trying to understand a little more on how Islamic Banking/Trading works.
  • #7
  • Apr 3, 2007 10:26pm Apr 3, 2007 10:26pm
All the information you needed to know is inside the previous posts.

swap free accounts do not pay or charge interest. They charge a commission instead. So your second example is somewhat invalid...Client A gets a positive swap only if he's on a swap-bearing account...which means Client A would ALSO PAY a negative swap. Client B will not get charged OR PAID a swap if he/she is interest free.

Now, from what it sounds like, it sounds like you're assuming that client A and client B would "offset" each other...and that may be true, but in all honesty, that has nothing to do with that. If the broker finds an opportunity to sell a "winning" position to a second tier the broker gets a kick back on the SPREAD for the swap as well...meaning if a broker can hold a "losing" position, this only puts money in his/her pockets...if the swaps grow to a point where it may be positive, the broker can sell the position to a higher tier and make money on the swap spread (basically, if the broker pays you a certain interest rate, it's because the broker is getting a BETTER interest rate).



Quoting bodshyipmonitor
Guess afterall, I still haven't get an answer.

Normal Swap Account
Client A get +swap on open buy position.
Client B pays -swap on open sell position.

Therefore, brokers get -swap from Client B and give it to Client A.

Swap-Free Account
Client A get +swap on open buy position.
Client B pays 0 swap on open sell position.

Client B doesn't pay swaps anymore, so who pays the +swap for Client A?

I am just trying to understand a little more on how Islamic Banking/Trading works.
  • #8
  • Apr 6, 2007 6:43am Apr 6, 2007 6:43am
maybe I sound a little confusing in my previous post.

My assumption is that Client A is with Broker A with a swap paying account and Client B with Broker B with a swap free account.

For eg Client A buy 1 lot of AUDJPY and Client B sell 1 lot of AUDJPY.

Client A would be getting +swap for his open buy position.
Client B suppose to be paying -swap for his open sell position would not be paying any swap due to the swap free account he has with Broker B.

If we work on brokers just match orders between buyers and sellers and sellers should pay swap to the buyers, someone has to fork out the swap Client A is getting.

And who is that someone?
  • #9
  • Apr 10, 2007 2:52am Apr 10, 2007 2:52am
Although I do not know whether it is helpful, I decided to write my using broker's example.
When my using broker created Interest-free Live Account, I asked the person in charge the details.
Here is their information which he e-mailed me.
1. Margin requirement of $1,000 per unit(1 unit=100,000).
2. Interest free account will not incur rollover charge or credits.
Instead, such an account will be charged a fee of $20 for each standard unit(100,000 contract size) open per calender day. Clients will pay this amount if they sell the currency with the higher interest rate in the pair.
3. At end of month, accounts with equity less than $5,000 will incur a maintenance fee of $100.
By the way, my using broker's currently the USDJPY rollover is $3.0/$-15.5.(In case of margin requirement of $250 per unit, the USDJPY rollover becomes $-15.5/$-15.5)
Peace and Happiness through Prosperity (by Konosuke Matsushita)
  • #10
  • Apr 10, 2007 9:37am Apr 10, 2007 9:37am
Bod,

I don't know how many times I can explain this.

Just because brokers try and price match clients doesn't mean that they actually do. The "someone" who pays the interest will end up being the broker or the bank they sell the position to.

In the swap free scenario, the swap-free account only gets held until the broker starts losing too much money for them to carry the position. At which point, they sell the position and end up eating the interest charges. The issue is this...brokers will be vary wary of any large position that would normally require interest payment.

You absolutely have to understand that WHOLE concept (as I understand it) of islamic swap-free accounts is that a fundamental islamic belief is that they cannot EARN interest...the brokers interpret that to mean that islamic clients literally cannot EARN interest...however, that doesn't absolve them from PAYING interest. Therefore, my hallucination is that anyone given the priviledge of a swap-free account shouldn't have a net EARNED interest, ESPECIALLY if your position is in the money, because at that point, the broker will call foul and revoke swap-free priviledges.

Quoting bodshyipmonitor
maybe I sound a little confusing in my previous post.

My assumption is that Client A is with Broker A with a swap paying account and Client B with Broker B with a swap free account.

For eg Client A buy 1 lot of AUDJPY and Client B sell 1 lot of AUDJPY.

Client A would be getting +swap for his open buy position.
Client B suppose to be paying -swap for his open sell position would not be paying any swap due to the swap free account he has with Broker B.

If we work on brokers just match orders between buyers and sellers and sellers should pay swap to the buyers, someone has to fork out the swap Client A is getting.

And who is that someone?
  • #11
  • Apr 10, 2007 10:37am Apr 10, 2007 10:37am
mrmikal,

I think I got it. The brokers are the market maker. They bet against you until they cannot hold it. If they can't hold it any longer, they will push it to the interbank and they themselves have to pay the negative swaps.

I hope that my understanding is right now.

Thanks anyway, mrmikal. you realli shed some light for me.
  • #12
  • May 19, 2007 6:18pm May 19, 2007 6:18pm
Mrmikal,
Thanks for the information. I found your post intriguing.

Just compare the no swap account to the Triple Interest Wednesday. Who pays 3 days interest out for a positive interest trade that is on for 10 minutes, but happens to start at 4:51 EST on Wednesday??

Here is simply an educated guess. There are a bunch of trades early in the week that neither pay nor receive interest unless they are live after 4:59 EST on Wednesday. How the heck does a bank/broker get away with that? I think the bank/broker actually has the flexibility to charge or not charge interest, and of course they make the spread, and their prop desk most likely aggressively trades against the retail trader since they can see the orders posted, and history shows the retail trader tends to fail most of the time.

OR perhaps the bank/broker has a slush account that pays or receives the interest from all those pre-Wednesday trades... at the end of the day this account is either positive or negative. IT would be the perfect place to debit the interest your no swap client should be paying.

Good Trades,
Yukoner
  • #13
  • Last Post: May 21, 2007 6:11pm May 21, 2007 6:11pm
As of the topic,

a friend of mine just signed for InterbankFX for a live "No Swap" account and he got this message.

As of April 24th, 2007, Interbank FX will no longer be offering
Interest Free accounts to our customers due to interest carry costs to
Interbank FX. We will continue to process your application to open your
account; however, all positions will incur regular interest carry charges
(or swap).
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