Chương 5  Commission and Rollover Rate

Commission

When opening a trade, no matter the direction, the first thing that “disappears” from a trading account is the commission the broker charges for that transaction. This is deducted at the opening time of the trade, no matter how long the trade is being kept open.

This commission is deducted from the Equity of a trading account, not from the Balance.

How Does Commission Vary?


Commission varies from broker to brokers in trading accounts and trading volume. But generally, the bigger the volume traded, the higher the commission charged. In other words, if you trade 0.1 lots at a commission rate of 0.5 USD/standard lot, you can expect lower commission rate if you increase your lot size.

However, as brokers are on a constant run for providing incentives to attract clients, they lower commissions for every transaction to make the traded volume grows. 

Rollover

Rollover is the interest paid or earned for holding a currency spot position overnight. Each currency has an overnight inter-bank interest rate associated with it, and because Forex is traded in pairs, every trade involves not only two different currencies but also two different interest rates. Rollover refers to the interest either charged or applied to a trader’s account for positions held “overnight”, meaning after 5pm ET.

When a Forex position is open, the position will earn or pay the difference in interest rates of the two currencies. These are referred to as the Forex rollover rates or currency rollover rates. The position will earn a credit if the long currency’s interest rate is higher than the short currencies interest rate. Likewise, the position will pay a debit if the long currency’s interest rate is lower than the short currencies interest rate.

For example, consider a long trade on EUR/USD and the EUR overnight interest rate is lower than the USD overnight interest rate you will pay the difference.

Calculation of Rollover Rate

Calculating the rollover rate involves:

Subtracting the interest rate of the base currency from the interest rate of the quote currency;

Then divide that amount by 365 times the base exchange rate.

If the rollover rate is positive, it’s a gain for the investor. If the rollover rate is negative, it’s a cost for the investor.

For example, assume that an investor owns a mini lot, or 10,000 units of CAD/USD. The current exchange rate is 0.9155, the short-term interest rate on the Canadian dollar (the base currency) is 4.25% and the short-term interest rate on the U.S. dollar (the quoted currency) is 3.5%. In this case, the rollover interest is $22.44 [{10,000 x (4.25% - 3.5%)}/(365 x 0.9155)]. Luckily, Most Forex exchanges display the rollover rate, meaning calculation of the rate is generally not required.

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