Before placing a Forex trade there are several costs to consider:
The difference between the current buy price and the current sell price is referred to as the spread. This is shown as a number of points based on the last large number within the price quote
The spread on the UK 100 shown here is 1.0, calculated by subtracting 6,447.7 (buy price) from 6,446.7 (sell price).
The spread on the GBP/USD shown here is 1.40. If you subtract 1.65364 from 1.65378, that equals 0.00014 but as we base the spread on the last large number in the price quote, it equates to a spread of 1.40
At the end of each trading day (5:00 pm Eastern time), positions held in your account may be subject to a charge called a “holding cost”. The holding cost can be positive or negative depending on the direction of your position and the applicable holding rate.
Historical holding rates, expressed as an annual percentage rate, are visible on our platform within the product overview section of each product.
Holding rates for forex are based on the TomNext (Tomorrow to Next Day) rate in the underlying market for the currency pair and are expressed as an annual percentage.
- Buy position holding rate = TomNext Rate % - 1%
- Sell position holing rate =TomNext Rate % + 1%
Different rates are quoted for buy and sell positions and are actively traded between banks. TomNext rates in the underlying market are based on the interest rate differential between the two currencies. As a general rule, if the interest rate of the first named currency is higher than the second named currency in the pair (subject to the 1% adjustment detailed above), and you hold a buy position, the holding cost will be credited to your account. Conversely if you hold a sell position in this scenario, the holding cost will be debited from your account.
Using GBP/USD as shown in example 2, if you decided you wanted to buy, you would buy at a price of 1.65378. You would then need the market to move in your favour by 1.4 points to start making a profit.