WHAT ABOUT INTEREST?

WHAT ABOUT INTEREST?
If you want to hold a position for several days, a rollover process is necessary.
In the spot forex market, all trades must be settled within two business
days at the close of business at 5 P.M. (Eastern Standard Time, EST).
The only fee involved here is the interest payment on the position of currency
held. At times, depending on the position, you can receive an interest
payment as well. This is where the term tomorrow/next (Tom/Next) applies.
It refers to the simultaneous buying and selling of a currency for delivery
the following day. As with futures, the forex market is now regulated
to an extent and comes under the scrutiny of the self-imposed regulators,
such as the National Futures Association after the Commodity Futures
Trading Commission (CFTC) Modernization Act passed in 2002; but since
there is no centralized marketplace, many forex dealers can and do make
their own rules and policies. Because forex dealers are in the business to
make money and to provide a service for traders, some firms will charge interest
on your account but not make an interest payment to your account
The Business of Trading Money 13
unless you meet certain financial requirements. Again, because these dealers
are in the business to make money, I have heard stories that some
will even increase the interest charge by more than double the going rate;
and if they do give a credit offer, the rate will be below what the market is
really at.
Since most traders in forex are short term in nature, by settling up or
closing out their positions by 5 P.M. (EST), they are not generally concerned
with the interest rate charge aspect. Also, unless they have serious positions
on (over $1,000,000 value), the interest charge will be minimal anyway
and not something that should distract from the job at hand, which is trading.
My advice is this: Do your homework when looking for the right dealer
to trade through and ask questions regarding interest charge policies when
holding positions for several days.