Swap rates

[garyfritz]

I've never paid close attention to swap rates because I've always traded intraday. I want to start holding some longer trades and I want to understand how the swap will affect it. I suspect I'm not the only one.

Cowboy IBFX sent out new swap rates. For example, AUDUSD is US$12.96 long, -$13.76 short. So does that mean if I hold AUDUSD long overnight, they charge me $12.96 per full lot? Or do they PAY me $12.96?

Here's my thought:
* The USD currently pays almost zero interest, while the AUD pays good interest.
* When you go long AUDUSD, you are buying AUD and selling USD.
* So you're getting paid interest on AUD (you bought it so you own it & get the interest), and you're paying interest on USD (you had to borrow it to sell it). So going long AUDUSD should PAY interest.
* Since long AUDUSD has a positive swap value, I assume positive swap values are the positive amount they PAY you, and negative values are the positive amount they CHARGE you.

In other words the sign describes what happens to your account. Positive swap adds to your account, negative swap debits from your account.

Have I got that right?

[SteveHopwood]

Yep. They pay you.

Buy AUDxxx and the swap is brilliant. Sell AUDxxx and the swap will break your heart. Likewise CAD/NZD.

This is the basis of of the swap filters in so many of my bots, i.e.
extern string pts="----Swap filter----";
extern bool CadPairsPositiveOnly=true;
extern bool AudPairsPositiveOnly=true;
extern bool NzdPairsPositiveOnly=true;

These filters ensure that the bot will only trade when the swap on the pair is positive. Negative swap plays merry hell with the profitability of the trade if it is one that you are prepared to leave open for days/weeks/months. Equally, positive swap is bliss.

If you want to be able to leave trades open overnight or longer, then do not sell any pairs that involve CAD/AUD/NZD. So, selling gbpnzd is fine. Buying it is a disaster.

[garyfritz]

I saw what you did there Steve.

Buy AUDxxx and the swap is brilliant. Sell AUDxxx and the swap will break your heart. Likewise CAD/NZD.

True in general. But AUDNZD is the other way around. And of course xxxAUD are opposite.

Swap.gif

That's the swap per full lot. So selling any of AUDCHF/AUDJPY/AUDUSD/AUDCAD is going to cost you about 1-1.6 pips per day. I would hope a multi-day strategy makes a lot more than that per day. E.g. in the last 7 weeks AUDCHF has averaged about 26 pips per day. You won't always get that much of course, but I would think one pip per day would be fairly minor. Am I missing something?

[SteveHopwood]

I saw what you did there Steve.

Damn. I was hoping to remove the post before you spotted it and its attendant bloops. Hey ho.

That's the swap per full lot. So selling any of AUDCHF/AUDJPY/AUDUSD/AUDCAD is going to cost you about 1-1.6 pips per day. I would hope a multi-day strategy makes a lot more than that per day. E.g. in the last 7 weeks AUDCHF has averaged about 26 pips per day. You won't always get that much of course, but I would think one pip per day would be fairly minor. Am I missing something?

I don't know if you are missing something, or if indeed a multi-day strategy makes my previous post irrelevant. What I can say is this: markets can wander around for days on end going nowhere. They do not care what your strategy is; whilst wandering around (i.e. 'consolidating') selling AUD etc will cost you a fortune, whilst buying it will make you a slightly lesser amount.

So, if you are sure that your multi-day strategy will overcome the loss of selling AUDxxx etc then fine. I have yet to meet one that does, but only because I have yet to meet one that does. No doubt they exist. If it doesn't, then bear the swap in mind.

Hells Bells Gary, there are lots of pairs out there that do not attract the kind of lethal swap that the pairs we are talking about do. Why fight it? Guess how I know that this is not a good idea?

Up to you, but my wildest nightmares do not includes selling aud/cad/nsd for more than a day. Not after experiencing having done so.

[SteveHopwood]

Good info here. Thanks.

If you want to see the effects of swap in action, set up one fresh demo if you are a non-US trader, or two if you are subject to those lunatic US hedging laws.

Set up some charts and buy AUDxxx, then some more where you sell AUDxxx. Equal lot sizes. No stops of tp's; they are not the purpose of the exercise.

Leave the trades for a few days. Enjoy the buys and be horrified by the sells.

[garyfritz]

Yeah, you definitely wouldn't want to put on a negative-swap pair and then leave it there for a long time.

Seems like if you had a working system that was actually good at grabbing profitable multi-day trades, then the swap should be a pretty minor cost. You could choose to only take the positive-swap side of the trade, but if the negative-swap side was still a winner, you're better off to take both sides. But for something like Pitbull where you hedge losers and possibly leave them there for a looong time, waiting for them to come back -- yeah, for that the negative swap would be a killer.

FWIW: here's a simple indi that displays pair info including swap per full lot. It's not "pretty" because you can't control the font for Comment(), but it was simple. I'm working on a nice text-object version but it's pretty low on the priority list.

[SteveHopwood]

Seems like if you had a working system that was actually good at grabbing profitable multi-day trades, then the swap should be a pretty minor cost.

This is true. My comments are aimed at the high-swap pairs, and were inspired by your example in post 1. These include AUD, CAD AND NZD on most Empty4-offering crims.

On lower-swap pairs, said swap is not such a problem. Yes, it mounts up over time, but if the trade is moving into a decent profit then the negative swap annoys, rather than hurts when the markets consolidate.

And yes, if you have a working system that grabs profitable multi-day trades, then the high negative swap pairs does not hurt.

Until the market consolidates. For days. And days. And it will. Then it hurts. As I ask from time to time, guess how I know?

[mobthehop]

Gary,

for you to play with - displays in sub-window though

Mop

[SteveHopwood]

We all know (or should know) that buying aud attracts a lot of positive swap, whilst selling it attracts a lot of negative swap. Ditto CAD and NSD pairs. Newbies, if you do not know this then emblazon this into your memory banks.

I have two live trades outstanding at the mo - buy audchf (10.2) and sell gbpaud (Flying Slope).

Now, I am slightly uncomfortable about having effectively bought aud twice, but the facts are these:

• - my lot sizes are so small that aud could tank by gazillions of pips without bothering the account.
  - the swap gained from buying aud is keeping trades in profit that are losers in terms of market movement.

This is before we consider the power of the trading systems that led to me taking the trades in the first place.

Give this some thought guys, before selling the currencies that attract high negative interest when you do so. Imagine how my heart would be bleeding right now were my trades in the opposite direction (but no, I do not allow this to happen).

[jboy]

It is really painful to hold short AUD or NZD pairs with negative swap. I'm constantly wanting to short AUD because it is overvalued in my opinion. Fundamentally, The Reserve Bank of Australia needs to lower the interest rates because the high Australian dollar is hurting their economy.

I also notice that when AUD goes down, it goes down hard and fast. It doesn't waste any time in slowly going down.