Hi traders, I'm mainly a stock investor and not forex trader so please excuse my possible ignorance. My domestic currency is CZK and I have 22.5k USD worth portfolio. What I did was that I shorted -22.500 USD.CZK at price around 21.5USD/CZK (total circa 500k CZK) in my Interactive Brokers account. However in my November statement I see I paid 1694CZK as a USD Debit Interest. That means (1694*12)/500.000 = 4%/yr for this position! Interest rate of Czech Koruna is 0.5%, US dollar is 1.5%, therefore I should be paying only 1%/yr interest when shorting USD.CZK. Maintenance margin for USD.CZK position is 20k CZK (circa 1k USD) so interest from margin should neither make a big amount. There are probably some other expenses that I don't know about. Can you please help me? Thanks in advance. Martin
You can't short (borrow) something without paying interest. If you want to hedge, you buy a futures contract or an option.
to nooby: Paying interest is ok however what is the base I pay the interest from? Margin or the total worth of the position? Second interest is difference between interest rates of the currencies and in case of -USD/CZK it´s only 1%.
https://www.interactivebrokers.co.uk/en/index.php?f=1595 For a FX position you will be payed/charged the interest rate differentials on both legs. Look at interest rate payed/charged in the link above. You get nothing for your 21.5K USD leg and should pay like 3% for the ~500K CZK leg.
Thanks for the link Pipi436, now it´s pretty clear. I have to close the position. I would like to hedge using the futures, but Czech koruna is not so popular currency and I see the volume on USD/Czech koruna futures is 0 (http://www.cmegroup.com/trading/fx/emerging-market/czech-koruna.html). Does anyone have any idea how to hedge Czech koruna?
Don't worry about CME fx futures volumes. The markets are arbed against cash. Just offer at fair value minus ε and you'll be taken.