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Interest Carry Trades

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What is Forex | What is the Forex Market | What is Forex Trading

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Another unique factor in forex trading is Interest, or carry trades. Each currency pair has an interest payment or charge associated with holding the position long or short. For instance, on some pairs, a payment may be made if you are in a long position, and a charge is made if you are short the pair. That charge or payment is the interest or carry for that particular pair.

“Interest,” and “carry” are terms used by your dealer to describe this interest premium paid or charged on each forex pair.

The amount charged or received on each of your forex positions can be seen on the MetaTrader 4 application in the “Terminal.” The premium can change on a daily basis but typically not dramatically.

This interest premium is derived from the difference in short term interest rates between the two economies represented by the currencies in the pair you are trading. The short term interest rates used are the overnight LIBOR rates. These are typically set by the British Banker’s Association and are changed on a daily basis.

Interest on Wednesdays

A surprising fact for many new forex traders is that the interest payment or charge is tripled on Wednesdays. This extra payment is to cover the interest that would normally have been paid on Saturday and Sunday when the market is unavailable for trading.

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