Earning or Paying Interest
Basic Understanding is that we have a cost or credit in carrying either higher yielding or lower yielding currency.
If we short AUDUSD, we would pay interest because the AUD has a higher interest rate then USD, if we went long, we would receive interest because we own the higher yielding currency.
1- Interest concerns apply to forex trading accounts:
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Dealers use words like “interest,” “roll-over,” “tomorrow-next,” and “cost of carry” to refer to the premium that is paid or charged on each FX pair. Every forex pair carries an interest payment and charge related to having a long or short position.
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You will either pay or receive interest based on the pair you trade and the direction of your trade. You might need to check the IG website for additional details.
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Daily changes to the premium are possible, but they usually don’t occur very often.
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The differential in short-term interest rates between the two economies represented by the currencies in the trading pair is the source of this interest premium. The interest rate used for short-term loans.
2- Depending on the dealer, are used to pay interest premiums:
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The most typical method of paying or charging you for this interest is by making a physical payment; the money will be added to or taken out of your account at the end of each day, OR The broker has the option to reset your position at a little better price.
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Your entrance price is reset to be less than when you initially entered if you were long and are owed a premium because of this position reset procedure. Similarly, your entry price will be reset to be somewhat higher than it was initially if you are short and owing a premium.
