Deposit

Deposit: To place inside for safekeeping. In finance, we deposit funds into an account.

Overnight Premiums

Overnight Premiums - text

When an FX position (or a CFD position) is held overnight (or ‘rolled over’) there is a charge known as a ‘swap’ or ‘overnight premium’. We call it a charge; however it is possible to earn a positive sum each night too.

So for example, if we were buying the AUD/CHF we would earn a positive overnight sum as we would earn interest on the Australian Dollars we bought as the Australian interest rate is higher than the Swiss interest rate. So often buying currencies against the Swiss Franc will result in a positive swap.

For the most part however an overnight premium will be a charge on our account and again this relates to the size of our position. The actual percentage is very small each night as it is the annual interest rate divided by 360. Our broker automatically calculates overnight premiums and they usually take effect after 10pm GMT.

The formula is:

Premium charged divided by earned = Trade amount X Premium or interest X Number of Days / 360 Days

Under the trading conditions most brokers will stipulate the swap rates for a buy or sell position on each pair. We multiply this rate by our trade size and divide by 360 like the formula above to know what premium we are charged or we earn.

We can see that the overnight premium can be positive or negative and depends on whether we are buying or selling the pair. It is important to review the premiums if we plan to leave positions open overnight as it will affect the profit or loss of our position. All brokers should outline their overnight rates under their trading conditions.