Positive vs. Negative Overnight Interest Rates in Forex

2023-05-26
Summary:

In foreign exchange market, overnight interest rates vary by currency pair. High-interest pairs may earn income, while low-interest pairs incur costs.

In the forex market, buying and selling are currency pairs, and there are no issues with storage and preservation of goods. Therefore, the inventory fee in the forex market actually refers to the cost of forex holdings, which is overnight interest. Overnight interest is the interest paid or earned by holding a position overnight. Each currency has its own interest rate.

overnighted interest rates

Is it normal for investors to notice positive and negative overnight interest rates?


It is normal for overnight interest rates to be positive or negative, as this is due to the different interest rates of different currencies in the forex market. When conducting forex transactions, if you hold a high interest rate currency pair (such as AUD/JPY), you can receive overnighted interest income; If you hold a low interest rate currency pair (such as euros/dollars), you will need to pay overnight interest fees.


For example, if you hold a long position in AUD/JPY with current overnight interest rates of 0.5% and -0.1%, you may receive an overnight interest income of approximately $3.3 per day (calculation formula: 100000 * 3.5%/365=9.59), or you may need to pay an overnight interest expense of approximately $1.6 per day (calculation formula: 100000 * -0.1%/365=-0.27).


Therefore, it is a normal phenomenon in the forex market to have positive and negative overnight interest rates, which reflects the differences in interest rates between different national currencies. Traders need to choose a suitable currency pair and holding time based on their trading strategy and risk tolerance, in order to maximize returns or reduce costs.

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