Jemook wrote:nanningbob wrote:kwanann wrote:That's exactly my point, for some strange reason it doesn't apply to fxprimus.
I play 1:100 swap for uj is -0.15
I play 1:500 swap is still -0.15
Or are you saying that if I play 1 lot vs 2 lots, the swap for 2 lots is more?
Sorry I.m kinda lost..
That is obvious, if you cant understand that the higher the leverage the more money you are borrowing thereby increasing your costs on a trade then there is nothing I can do. I cant explain it any better than that.
Bob having a higher leverage does not mean you pay more swaps. Swap cost is based on the contract size so you would pay / gain the same swap cost for holding a 1 lot position @ 1:400 leverage as holding a 1 lot position @ 1:1 leverage.
Kwanaann is correct.
Cheers,
J
Jeepers, I cant believe people dont understand or comprehend this.
1. It has nothing to do with the lot size.
2. It has nothing to do with the interest rate.
3. It has nothing to do with swap cost.
So throw all those points in the garbage it has nothing to do with what I said or what I point out.
Leverage has everything to do with how much money you are borrowing from the broker to make a trade.
When you place a trade with a 10,000 lot size you are not putting up all that money. You only put up a percentage of your account. The broker/bank puts up the rest. That is called leverage. If you trade 400:1 you put up 1 dollar the broker puts up 400. The difference is 399 dollars. You pay interest on that 399 which is called swap costs. It is the cost of borrowing the money from the broker. Sometimes the interest rate between the 2 currencies make a positive on the borrowing cost so that is a positive in your favor. Most of the time however, it is a negative. So you pay interest on the difference of the interest costs of the two pairs.
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So here is the simple question and if you cant understand this I am done with this issue. If you borrow money at 400 to 1, in other words 1 dollar is your money and 399 is the brokers money. 400:1 leverage OR you borrow money at 50:1, in other words 49 dollars comes from the broker and 1 dollar is yours. The swap rate (interest rate) is the same for both and the lot size is the same for both. HOWEVER, the amount of money you pay in interest to borrow 399 dollars is more than the amount of money you pay on 49 dollars. You are borrowing more money so pay more money on swaps. Lot size the same, swap rate the same, amount of money borrowed from the broker is different.
Now small amounts of money or lot sizes may seem like the swap rate is the same but once you get into the big lot sizes the amounts can be significant. If you have a 100,000 dollar lot and 10:1 trading ratio 90,000 is the brokers and you pay interest or swap on that amount. The 10,000 is your money so you dont pay interest or swap on your money. If you trade 100:1 then 99,000 is the brokers and 1000 is your money. The difference is you are paying interest on 9000 more dollars than the other guy. This is called leverage. Now when you trade 1000 or 10,000 lots the amount in short periods of time may seem the same but over longer term you will have higher costs in swap because the amount of money your are borrowing to make trades adds up. If you dont understand the difference after this then I give up.
For the broker higher leverage is bonus money for him because he can liquidate your account at anytime so his part of the loan is never in danger of losing money. The more money they put in the more they make because they are covered by your money you put up. I suspect that many of these guys who report that they got their accounts wiped out and I am sitting on less than 10-20% DD is they are using high leverage and their margin calls come in. They wonder how Bob survives and they get their clocks cleaned. The issue is leverage. Not only did the broker/bank get all their money but got a higher rate of return dollar per dollar on the interest (swap) they earned. This is because you risk your accounts with higher leverage than if you use lower leverage. The broker also collects more in costs due to leverage. Anyway, some of you will understand this, some of you wont.
Really appreciate your time on this. I do have a couple of questions though.
