Interest cost calculator for FX positions

Discussion in 'Forex' started by coreed, May 14, 2011.

  1. coreed


    Is there a calculator (HTML/Excel) available anywhere that calculates the interest costs for FX trades?

    Failing that an article that explains in understandable terms how it is calculated, so I can create my own formula.

    I am with IB and their explanatory data/information does not reconcile with what they have charged me. I had always understood that unless putting on carry trades, the cost of financing in FX trades was minimal, as one credit offsets the other debit.

    It appears that IB have charged me the following:

    Trade: Long (47,500) USD/MXN Holding period 7 days.
    Total int cost USD 24.18

    Trade: Short(25000) USD/SEK Holding period 7 days.
    Total int cost USD 9.10

    This was an arb trade where the overall profit was around $110, but if the carrying cost is $33.12 then it is significant in relation to profit margins in this type of trading.

    Any light that can be shone on my ignorance wld be appreciated.
  2. m22au


    All currency trades are carry trades. At best you are paying debit interest on the currency you are selling. At worst you could receive zero credit interest, or even pay interest on the currency on you are buying.

    It doesn't really matter how it works in theory, because you are obliged to pay whatever interest IB charges you for currency positions.

    Have a look at this page:
  3. You should be able to figure this out by looking at USDSEK t/n fwd vs spot. Ultimately, it's up to the broker, as m22 said, so you should call IB and ask them to provide you with the explanation of their exact methodology.

    In theory, carry in FX is determined by a the "interest rate parity" principle. It's very easy to calculate the theoretical carry in Excel based on the parity formula.
  4. mogul


  5. coreed


    Many many thanks. This was exactly what I am looking for.