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income
In foreign exchange margin trading, the main influencing factors are: trading profit, overnight interest, spread, commission and deposit and withdrawal fee.
In foreign exchange margin trading, there are mainly two kinds of income. One is trading profit; The other is overnight interest.
Trading profits, foreign exchange margin trading is spread trading. You can make a profit by buying currency pairs at a low level, selling currency pairs at a high level, or selling currency pairs at a high level and buying currency pairs at a low level.
It should be noted that one difference between foreign exchange margin trading and domestic stock market is that foreign exchange margin trading is a two-way transaction, and you can go long or short.
In foreign exchange margin trading, some currency pairs can profit from overnight interest in addition to the bid-ask spread, buying high-interest currencies and selling low-interest currencies.
Of course, for Islamic accounts, there is no question of overnight interest.
Cost:
There are four main costs of foreign exchange margin trading: spread, commission, overnight interest and deposit and withdrawal fee.
1. spread
Spread, open a trader's trading software (including WAB/app/ client). Under normal circumstances, at the same time, for customers, the buying price of a currency pair is higher than the selling price. The spread between the two, which we call spread, is the main transaction cost of traders.
However, occasionally, some traders will have zero spread or even negative spread in some spreads, mainly because traders get quotations from different liquidity, and different liquidity quotations may lead to the buyer's selling price at liquidity A higher than that at liquidity B. Generally speaking, this situation is relatively rare, and traders will also add some of their own acquisition costs and operating costs to the prices obtained from liquidity. In this case, the possibility of a negative spread is relatively small.
For example, in summer, you are engaged in cold drink wholesale business. At the same time, the price of an ice cream you bought from manufacturer A is higher than the price you sold to market A (if you sell it, manufacturer A can buy it back);
However, the ice cream of this product is very popular in other regions and the price is very high. You find that if you sell it to factory B (probably in other areas), the price you sell it to factory B is higher than the price you buy from factory A because it is out of stock in other areas.
When traders choose the best buying price and the best selling price, they will buy from factory A and sell to factory B at the same time, so there may be zero spread and negative spread.
2. Commission
In addition to spreads, traders will also provide traders with some ECN accounts or other accounts with very low spreads (such as some traders' c-trade accounts). There will be a low price difference between these accounts, but traders will charge traders extra fees, for example, the unilateral handling fee of $3.50 per lot as we see in the figure below.
At present, most traders in the market will provide such accounts to provide traders with services with spreads and commissions.
3. Overnight interest:
In our previous article "Tom- The Next Interest Rate and Overnight Interest of Foreign Exchange Margin Trading", the overnight interest of foreign exchange margin trading was introduced in detail.
As there is no substantial delivery of foreign exchange margin trading, the overnight interest in the retail foreign exchange market is calculated on the basis of spot-to-spot swap trading, and the T/N(Tom-Next) interest rate is adopted. This T/N interest rate generally considers the interbank interest rate.
Generally speaking, considering the risk control and the cost of traders, the interest rate of positions offered by traders to customers will be higher than that of banks.
If the position cost is a direct amount:
The overnight interest quotation for selling and buying euros and dollars on the same day is 0.64/- 1.800.
That means: when your position is selling 1 hand euro, your trading account will get 0.64 USD; When your position is to buy 1 hand euros, your trading account will need to pay $65438 +0.80 euros.
If the position cost is expressed in the form of interest rate:
GBP/USD 0.42% for long positions in overnight rate and -0.88% for short positions in overnight rate.
Suppose you buy three lots of GBP/USD on Monday, and the market price is:1.7718/1.7722, and hold the position overnight until Tuesday, then the customers who hold GBP will get interest.
The calculation method is as follows: 0.42%/360x 10000x3 x 1.7722x 1 day = 0.62 USD, that is, the number of days the average annual interest reaches * the corresponding account funds * the buying (selling) price * the number of interest-bearing days.
But at present, long and short customers basically have to pay interest, mainly because most currencies are in a state of zero interest rate or low interest rate, and the interest rate difference between currency pairs is very low.
Moreover, on the basis of the inter-bank T/N(Tom-Next) interest rate, traders will add some of their own costs, which leads to the need to pay short-term and long-term overnight interest.
4. Deposit and withdrawal fees:
Generally speaking, the main deposit and withdrawal methods provided by traders are: online banking transfer or bank wire transfer; China unionpay; Credit card deposit. Generally speaking, most traders need a deposit fee for transferring money through online banking or bank wire transfer, but China UnionPay and credit cards will save money for free.
When withdrawing money, there are generally bank withdrawals and bank wire transfers, and basically there are handling fees for withdrawing money.
Of course, there are also some traders who offer WeChat margin.