Now we will learn about the Overnight Interest in the forex trading which is also often called as an Swap or the premium interest. Here we will learn how to do the correct calculations.

The purpose of the Central Bank rates are each like to JPY (Japanese Yen) that we see is the rate provided by the Central Bank of Japan, namely Bank of Japan. As of this writing, the rate charged by Bank of Japan for the currency JPY was 0.1% per annum. As for the USD (U.S. Dollar - the U.S.) rates we will consider is the interest rate established by the U.S. central bank, the Federal Reserve (commonly called the Fed) at 0.25% per annum.

Let's learn some technique in the forex trades.

What if I borrow from banks in the U.S. amounted to USD 1 million with interest on the loan, eg 3% a year. Then I change USD into AUD and I was deposited in a bank in Australia with deposit interest rate of 7.5%. I have a difference +4.5% / year. Interesting isn't it? it is just lending money. This technique is known as the Carry Trade a few years is quite widespread in practice. Does it so easy? In fact doing so is not that easy, risks and difficulties we will not discuss in this article but this became the basis for us to understand why Swap or Overnight Interest exists in forex trades.

Now, let's just pay attention to interest rates that are often traded currencies in forex trading, such as GBP (Great Britain Pound - UK) and USD, for example, we will trade the GBP / USD.

If the GBP will strengthen against the USD in the long run, so we took the initiative to open Buy GBP / USD in the next 1-3 days floating position, for example, we are trading 1 lot just in Mini Accounts. Position Buy 1 lot GBP / USD is going to get a premium / overnight interest rate for the UK higher than American rates.

For daily swap (premium rate) position Buy GBP / USD is as follows:

• The interest rate per annum England (BoE) is 1.0% and,

• U.S. rate per year (FED) is 0.25%.

Which set an interest rate is the central bank of each country, the Bank of England and the U.S. central bank is the Federal Reserve. Remember the rates listed are for a year.

Theoretical formula of premium / overnight interest per day are as follows:

• Position Buy for Pair A / B: ((the rate of country A - the rate of country B)% x Total Lot x Contract Size) / 365 days

• Position Sell for Pair A / B: ((the rate of country B - the rate of country A)% x Total Lot x Contract Size) / 365 days

So for the opening of the Buy 1 lot GBP / USD is:

((British rate - American rate)% x 1 x 10,000) / 365

= ((1 - 0:25)% x 1 x 10,000) / 365

= 75 / 365

= $ 0.2 per day for 1 lot.

So for the position Buy GBP / USD for 1 lot will RECEIVE $ 0.2 per day, but on the contrary, if a position Sell GBP / USD for 1 lot then it will PAY for $ 0.2 per day.

Hope you can get some knowledge of overnight interest (swap) in the forex trades, feel free to continue learning all the free forex training here.